Unleash the potential of China bonds BlackRock China Bond Fund

Unleash the potential of China bonds

  • IMPORTANT:

    1. The China Bond Fund seeks to maximise total return. The Fund invests at least 70% of its total assets in fixed income transferable securities denominated in Renminbi or other non-Chinese domestic currencies issued by entities exercising the predominant part of their economic activity in the PRC through recognised mechanisms including but not limited to the Chinese Interbank Bond Market, the exchange bond market, quota system and/or through onshore or offshore issuances and/or any future developed channels. The Fund is a RQFII Access Fund and a CIBM Fund and may invest without limit in the PRC via RQFII Quota and in the CIBM via the Foreign Access Regime and/or Bond Connect and/or other means as may be permitted by the relevant regulations from time to time.

    IMPORTANT:

    1. The China Bond Fund seeks to maximise total return. The Fund invests at least 70% of its total assets in fixed income transferable securities denominated in Renminbi or other non-Chinese domestic currencies issued by entities exercising the predominant part of their economic activity in the PRC through recognised mechanisms including but not limited to the Chinese Interbank Bond Market, the exchange bond market, quota system and/or through onshore or offshore issuances and/or any future developed channels. The Fund is a RQFII Access Fund and a CIBM Fund and may invest without limit in the PRC via RQFII Quota and in the CIBM via the Foreign Access Regime and/or Bond Connect and/or other means as may be permitted by the relevant regulations from time to time.

    2. The Fund may invest in debt securities that are subject to actual or perceived ratings downgrade. An increase in interest rates may adversely affect the value of the bonds held by the Fund. The Fund may invest in non-investment grade and unrated bonds that may be subject to higher default, volatility and liquidity risks. The Fund invests in bonds issued or guaranteed by governments or authorities, which may involve political, economic, default or other risks. The Fund may invest in urban investment bonds issued by Chinese local government financing vehicles (“LGFVs”) that are subject to default risk of the LGFVs.

    3. The Fund is subject to restrictions and requirements applicable to the Renminbi Qualified Foreign Institutional Investor (“RQFII”) investments, which may adversely affect the fund’s value due to regulatory uncertainties. The Fund is subject to risks associated with investment in the China Interbank Bond Market.

    4. The Fund's investments are concentrated in People’s Republic of China (PRC). This may result in greater volatility than more broad-based investments. The Fund invests in certain emerging markets and may be subject to political, tax, economic, social and foreign exchange risks.

    5. The Fund is subject to PRC tax risks, currency risks, securities lending counterparty risks, foreign investments restrictions risks, currency control/ conversion risks and currency hedging risk.

    6. Class 6 Shares pay dividends gross of expenses and/or from capital at the Directors’ discretion. Paying dividends gross of expenses may result in more income being available for distribution; however these shares may effectively pay dividends from capital – may amount to a partial return or withdrawal of an investor’s original investment or capital gains. All declared dividends result in an immediate reduction in the NAV price of the share class on the ex-dividend date.

    7. The Fund may use derivatives for hedging and for investment purposes. However, usage for investment purposes will not be extensive. The Fund may suffer losses from its derivatives usage.

    8. The value of the Fund can be volatile and can go down substantially within a short period of time. It is possible that a certain amount of your investment could be lost.

    9. Investors should not make investment decisions based on this document alone. Investors should refer to the Prospectus and Key Facts Statement for details including risk factors.

You don’t have to look far to find the income you need.

Target to capture yield and growth opportunities in the development of China’s bond market

The rise of China’s bond market to become the world’s second largest1 has been driven primarily by local investors. The next stage of its growth should see increased foreign ownership with ongoing inflows to the market as Chinese securities are increasingly represented in flagship global bond benchmarks.

>US$16T in size
>US$16T in size1
2nd largest in the world
2nd largest in the world1
15% annualized growth rate
15% annualized growth rate2
<3% foreign ownership
<3% foreign ownership2

In this low for longer interest rate environment across developed markets, income-seeking investors can look outside of core markets and consider China bonds to deliver potential yield opportunities and diversification benefits, and add resilience to a global portfolio. China bonds offer comparatively higher yields with muted volatility, and have lower correlations to global risk assets. This is especially important during times of market uncertainties.

BlackRock China Bond Fund:

Relatively attractive monthly income distribution

5.5% p.a. (A6 RMB share class as of 29 January 2021)
A6 share class aims to pay a dividend on a monthly basis. Dividend Payment is not guaranteed, and is not indicative of the return of the Fund. The Fund may effectively pay dividend from capital. See important information 6)3
5.5% p.a. (A6 RMB share class as of 29 January 2021)

Latest 6 months dividend table – A6 USD

Month Annualized Yield
1/29/2021 5.57%
12/31/2020 6.01%
11/30/2020 6.04%
10/30/2020 6.03%
9/30/2020 6.06%
8/31/2020 6.01%

A6 share class annualized yield = (Dividend rate / ex- date NAV) * (12*100). Dividend yield is not guaranteed, and is not indicative of the return of the Fund. Past performance is not a guide to future performance. Investors may not get back the full amount invested. A6 share class inception date: 11-Jul-2018.

Ranked 1st quartile
In 3 and 5-year periods and Morningstar 5-star rating4
Ranked 1st quartile
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The strong performance of BlackRock China Bond Fund over the past three years has been balanced with lower volatility and drawdowns.

Resilience to your portfolio
Risk return table


Source: Blackrock, Data as of end November 2020. The returns are calculated based on A6 USD-H share class (Inception date: 4 July 2018). and prior to July 2018 the A2 CNH share class, hedged back to USD (using the daily hedging costs). Calendar year performance: A6 USD-H:YTD: 5.2%, 2019: 8.1%, 2018: 2.4% (inception to year end); A2 CNH:YTD: 7.0%, 2019: 8.8%, 2018:3.3%, 2017:8.8%, 2016:4.5%. The examples provided are strictly for illustrative purposes only and serves as a general summary. It is not exhaustive and should not be construed as investment advice or recommendation. The solutions are based on the specific allocations and outcomes are unique. The allocations described are hypothetical, random and conceptual. Past performance is not a guide to future performance. Investors may not get back the full amount invested. Performance is calculated based on the period NAV-to-NAV with dividend reinvested. Performance figures are calculated net of fees. Quartiles: Morningstar. Category: Morningstar’s USD Flexible Bond. Peer comparison shown is for illustrative purposes only and does not purport to compare all funds in the same investment universe nor does it compare all characteristics of the funds shown. Reference to the name of the funds should not be constructed as investment advice or investment recommendation of those funds.

Relatively low correlation may offer greater diversification and resilience to your portfolio5

China bonds have lower correlation to different asset classes6 and the Fund's relative short duration can help provide significant diversification with existing fixed income exposure and help investors manage risk, offering greater resilience during market fluctuation.

Low correlation of onshore credit to global risk assets (5-year as of end November 2020)

Low correlation of onshore credit to global fixed income (5-year as of end April 2020)

 

Source: Bloomberg, end November 2020. China Onshore Credit: China Bond Credit Bond Index; Asian High Yield Credit: JP Morgan Asian non-Investment Grade Index; China USD Credit: JP Morgan China Credit Index; Global IG Corp (USD Hedged): Bloomberg Barclays Global Corporate Index; Global HY Corp (USD Hedged): Bloomberg Barclays Global HY Corporate Index; EM USD Sov/Quasi Credit: JP Morgan Emerging Markets Bond Index; EM Local Currency Bonds: JP Morgan GBI-EM Index; US Equities: S&P 500; Asian Equities: MSCI AxJ. Index performance is for illustrative purpose only. Investors cannot invest into an index directly.

Despite recent individual credit events, the risk of defaults appears to be lower in China bonds than those in other areas such as the US and the broader emerging markets, thanks to a more advanced stage of recovery of China from the pandemic and its deleveraging efforts before Covid-19.

We believe the latest series of defaults seen in China is an integral part of the credit cycle, not a systemic risk. The default rate in the onshore market is of similar level to that of 2019 and we believe the default rates are going to remain at around the same level in 2021.

China default rates remain low compared to global averages

 

For illustrative purpose only and there is no guarantee that the forecast will be realized. Source: JPMorgan Chase (Asia, US, Emerging Markets), BlackRock, November 2020 data and forecasts. The projected default rate for emerging markets in 2021 is expected to be 19%. Any opinions and/or forecasts represent comments on the market environment at a specific time. Estimates are not intended as predictions, guarantee of future events or future results.

 


A "go-anywhere" strategy with cross-border RMB bond offering
Have the ability to invest tactically across the China onshore and offshore RMB bond markets, the offshore Dim-sum market and hard currency China credit market to take advantage of the potential attractive valuations depending on different market environment.
Choice Arrow

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