Private banks and other firms catering to high net worth clients have snapped up a large chunk of new renminbi-denominated debt recently, attracted by valuations and long-term potential as an asset class, Nikko Asset Management says.

Private banks and other firms catering to high net worth
clients have snapped up a large chunk of new renminbi-denominated debt recently,
attracted by valuations and long-term potential as an asset class, Nikko Asset
Management says.

But while the RMB-based debt market has come a long way in a
short period of time as a market, investors still demand a premium when
compared to equivalent US
debt maturities, which may seem perplexing given the US’s immense fiscal woes, the firm
said in a presentation to journalists yesterday.

Part of the reason for a higher risk premium, at around 120
basis points in mid-2012 on A-rated debt securities (5-year maturities) at the end of June this year (source: Nikko AM presentation graph) is investor
concern that the market is still relatively undeveloped, illiquid and
under-researched, although this is changing, Nikko Asset Management said.

Large institutional investors such as pension and insurance
funds would take time to push more into RMB-based debt, while family offices,
private banks and similar bodies could afford to be bolder and less restricted
by rules, argued Charlie Metcalfe, president, Nikko AM.

“Family offices and other high net worth private client
managers are able to be a bit more creative in terms of the asset classes they
look at,” he said. “We’re definitely getting some interest.”

Speaking at the same event, Leong Wai Hoong, portfolio
manager and member of the firm’s fixed income team, said that private banks are
now buying up to around 35 per cent of new RMB debt issuance.