Bryan Collins, CFA
Head of Asian Fixed Income
Chinese BondsFidelity InternationalFebruary 26th 2019
For professional investors only
|1 Fidelity Asian Fixed Income
RisksThe value of investments and the income from them can go down as well as up so you may get back less than you invest.
Bond investments
These funds invests in bonds whose price is influenced by movements in interest rates, changes in the credit rating of bond issuers, and other factors
such as inflation and market dynamics. In general, as interest rates rise the price of a bond will fall. The risk of default is based on the issuer's ability
to make interest payments and to repay the loan at maturity. Default risk may, therefore, vary between different government issuers as well as
between different corporate issuers.
Corporate bonds
Due to the greater possibility of default an investment in a corporate bond is generally less secure than an investment in government bonds.
High yield bonds
Sub-investment grade bonds are considered riskier bonds. They have an increased risk of default which could affect both income and the capital value
of the Fund investing in them.
Overseas Markets
These funds invests in overseas markets and so the value of investments can be affected by changes in currency exchange rates.
Currency Hedging
Currency hedging is used to substantially reduce the risk of losses from unfavourable exchange rate movements on holdings in currencies that differ
from the dealing currency. Hedging also has the effect of limiting the potential for currency gains to be made.
Emerging Markets
These funds invests in emerging markets which can be more volatile than other more developed markets.
Derivatives
These funds may make increased and more complicated use of derivatives and this may result in leverage. In such situations performance may rise or
fall more than it would have done otherwise. These funds may be exposed to the risk of financial loss if a counterparty used for derivative instruments
subsequently defaults.
Other
The funds do not offer any guarantee or protection with respect to return, capital preservation, stable net asset value or volatility. Reference to specific
securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. Investors
should note that the views expressed may no longer be current and may have already been acted upon.
|2 Fidelity Asian Fixed Income
Fidelity International
Chinese Bonds
Why are Chinese Bonds relevant for German investors?
Characteristics of Chinese Bonds
Risks to consider
Fidelity in Asia
2
1
3
4
1
|3 Fidelity Asian Fixed Income
Source: Fidelity International, 2019.
Decision tree
Do you want to invest in China?
Do you
want to
invest in
China?
YES
NO
Better diversification
Higher risk-adjusted returns
More Alpha?
Informed Decision?
Can you change the benchmark?
Can you take tracking error?
YES
NO
YES
NO
YES
NO
YES
NO
YES
NO
YES
NO
YES
NO
Wantto learn?
YES
NO
Build own capability?
Consultant
Outsource
HURRY
TALKTO US
DON’T BOTHER
1
|4 Fidelity Asian Fixed Income
GBI-EM
BBG-Barclays Global Agg
WGBI1)
0
50
100
150
200
250
300
US
D b
n
Source: Fidelity International, Citi, Standard Chartered Research, December 2017. Third party trademark, copyright and other intellectual property rights are and remain the property of their respective owners. 1) World Government Bond Index
Index inclusion will bring further inflows
>$280bn potential inflows
2017
Reviewing
▪ Global Agg. + China Index
▪ EM Local Currency Government
+ China Index
▪ FTSE World Government Bond Index
▪ EM Govt Bond Index
▪ Asian Govt Bond Index
▪ Asia Pacific Govt Bond Index
Bloomberg-Barclays Global
Aggregate Index2018
1
|5 Fidelity Asian Fixed Income
Source: Bloomberg, as of 31 January 2019 projected universe.
Pro Forma Impact on key Indices
6% by end 2020
Projected Count MV (USD bn) MV (%)
Global Aggregate Index:
+ 100% China (Full Weight in Nov 2020) 364 3,323 6.06% 4th place after USD, EUR, JPY
+ 5% China (April 2019 Scaling Factor) 364 166 0.32% 11th place
Global Treasury Index:
+ 100% China (Full Weight in Nov 2020) 159 1,551 5.24% 5th place after USD, EUR, JPY, GBP
+ 5% China (April 2019 Scaling Factor) 159 78 0.28% 16th place
Asia-Pacific Aggregate Index:
+100% China (Full Weight in Nov 2020) 364 362 23.83% 2nd place after JPY
+5% China (April 2019 Scaling Factor) 364 18 1.54% 5th place
EM Local Currency Government Index:
+ 100% China 159 1,551 42.07% 1st place
+ 5% China 159 78 3.50% 9th place
1
|6 Fidelity Asian Fixed Income
Forecasted growth
0
50
100
150
200
250
300
350
400
450
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
20
19
20
20
20
21
20
22
20
23
20
24
20
25
20
26
20
27
20
28
20
29
20
30
20
31
20
32
20
33
20
34
20
35
Further growth potential
Source: Fidelity International, Hong Kong Exchanges and Clearing Limited, China Central Depository & Clearing Co., Ltd (CCDC), Citi, WIND, as of December 2018. The forecasted market sizes are estimated values and are based on assumptions made by Fidelity. Therefore, Fidelity gives no guarantee for the accuracy of the information.
Size of China onshore bond market
Lower Range Upper Range
Size (RMB tn.)
2015 50 – 60
2020 90 – 100
2025 180 – 200
2035 Lower range 280 – 330
2035 Upper range 370 – 440
Market Size (RMB tn.)
1
|7 Fidelity Asian Fixed Income
Source: Fidelity International, WIND, December 2018. 1) Chinese Government Bonds
Evolution of China’s onshore CNY bond market
2012 Industry breakdown 2018 Industry breakdown
1
2
3
4
5
6
7
8
CGBs1) 17%
Local Government 21%
Interbank Notes 12%
Financials 24%
Corporates 3%
SME 7%
Medium Term Notes 7%
Short Term Financing 2%
1
2
3
4
5
6
7
8
CGBs1) 30%
Local Government 2%
Central Bank Notes 4%
Financials 35%
Corporates 7%
SME 2%
Medium Term Notes 10%
Short Term Financing 5%
1
2
3
4
5
6
7
8
1
2
3
4
5
6
7
8
Rapidly developing, not yet developed
1
|8 Fidelity Asian Fixed Income
Source: Bloomberg, Chinabond, Fidelity International, December 2018. Pie Chart : CEIC, Morgan Stanley.
Foreign ownership of China Government Bonds
Foreign participation increasing
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 Dec-16 Jun-17 Dec-17 Jun-18 Dec-18
> 8%
1
18%Overseas
Banks76%
Central Banks
& Sovereign
Wealth Funds
6%
Others
(incl. asset
managers)
|9 Fidelity Asian Fixed Income
Source: Bloomberg, ICE BofAML Bond Indices, J.P. Morgan Indices, MSCI Equity Indices based on 10-years to 31st July 2018. The table uses a linear color scalefrom 0 = green to 1 = red. For offshore RMB Bond, data since January 2011. For Onshore RMB Bond, data since January 2013.
Low correlation offers diversification benefits
Onshore
RMB
Bond
Asian
IG Asian HY US IG Euro IG
EM Corp
USD
Asian
Equity US Equity
Euro
Equity
US
Treasury
Onshore RMB Bond 1.00
Asian IG -0.11 1.00
Asian HY -0.16 0.86 1.00
US IG -0.12 0.88 0.74 1.00
Euro IG -0.08 0.66 0.59 0.80 1.00
EM Corp USD -0.20 0.92 0.92 0.83 0.67 1.00
Asian Equity -0.17 0.61 0.79 0.58 0.52 0.75 1.00
US Equity -0.14 0.44 0.63 0.38 0.40 0.61 0.82 1.00
Euro Equity -0.17 0.41 0.57 0.41 0.53 0.58 0.71 0.82 1.00
US Treasury 0.23 0.40 0.06 0.44 0.20 0.13 -0.13 -0.26 -0.30 1.00
1
|10 Fidelity Asian Fixed Income
0,0%
0,5%
1,0%
1,5%
2,0%
2,5%
3,0%
3,5%
Japan Germany UK US China
Source: Bloomberg, Fidelity International, February 2019.
Chinese government bonds offer higher yields
10-year government bond yields
1
Past Performance is not a reliable indicator of future results. The value of shares may fluctuate and can not be guaranteed.
|11 Fidelity Asian Fixed Income
1,92
0,78
0,95
0,63
0,97
0,12
0,0 0,2 0,4 0,6 0,8 1,0 1,2 1,4 1,6 1,8 2,0 2,2
Onshore RMB Bond
Euro IG
Asian IG
US IG
EM Corporate
Euro Equity
Source: Fidelity International, Bloomberg, ICE BofAML Bond Indices, J.P. Morgan Indices, ChinaBond, MSCI Equity Indices based on 5-years to September 2018. US 3-Month T-bill was used for Sharpe ratio calculation.
Attractive risk-adjusted returns
5-year Sharpe ratio of asset classes
1
Past Performance is not a reliable indicator of future results. The value of shares may fluctuate and can not be guaranteed.
|12 Fidelity Asian Fixed Income
Source: Barclays, Bloomberg, Factset, FTSE Russell, ICE, Fidelity International as of January 2019.Note: Analysis period is from 31/12/2013 to 31/01/2019. Chinese Government Bond (CGB) returns represented by ICE China Government Index (G0CN). Returns shown are USD unhedged. 1) World Government Bond Index
Backtesting including China
Performance
Ann. Std. Dev. Cumulative Return
Global Agg 4.47% 7.13%
Global Agg + 5% CGB 4.36% 7.76%
Global Agg + 10% CGB 4.27% 8.39%
Global Agg + 20% CGB 4.12% 9.66%
WGBI 2.86% 16.62%
WGBI1) + 5% CGB 2.78% 16.82%
WGBI1) + 10% CGB 2.72% 17.01%
WGBI1) + 20% CGB 2.69% 17.38%
1
Past Performance is not a reliable indicator of future results. The value of shares may fluctuate and can not be guaranteed.
|13 Fidelity Asian Fixed Income
Fidelity International
Chinese Bonds
Why are Chinese Bonds relevant for German investors?
Characteristics of Chinese Bonds
Risks to consider
Fidelity in Asia
2
1
3
4
2
|14 Fidelity Asian Fixed Income
Source: Fidelity International, ICE BofAML ADOL and CNHJ Indices, 2019.
Asia’s bond market
USD
12tn
China onshoreCNY denominated
Rates, FX, Credit
Other Local CurrencyIncludes KRW, MYR, IDR, INR, SGD, HKD
Rates, FX, limited Credit
USD
1tnAsian USD bond marketUSD denominated. IG, HY Credit
USD
35bnChinese offshoreCNH denominated. Unique
Three quite different ways to buy China
2
|15 Fidelity Asian Fixed Income
Source: Fidelity International, 2019. 1) Chinese Interbank Bond Market; 2) QFII = Qualified Foreign Institutional Investors; RQFII = Renminbi QFII
Various options
Accessing China onshore
China Onshore
Bond Market2011 2016
2017
QFII/RQFII2) CIBM1)
Bond Connect
2
|16 Fidelity Asian Fixed Income
Source: Chinabond, Goldman Sachs Global Investment Research, 2018.
Growing in depth and breadth
Onshore China bond market investor base
1 Commercial Banks 56%
2 Funds Institutions 22%
3 Special Members 6%
4 Insurance Institutions 6%
5 Exchanges 5%
6 Other 2%
7 Credit Cooperative Banks 2%
8 Securities Companies 1%
1
2
3
4
5
6
7
8
2
|17 Fidelity Asian Fixed Income
Source: Wind, Fidelity International. Credit rating comparison is indicative.
Investment grade by international standards
Onshore China bond universe
1% AA-
8% A
60%AAA
13% AA
17% AA+
Onshore Credit
Rating
International
Equivalent
AAA ~AA/A
AA ~BBB/BB
A ~B
2
|18 Fidelity Asian Fixed Income
Fidelity International
Chinese Bonds
Why are Chinese Bonds relevant for German investors?
Characteristics of Chinese Bonds
Risks to consider
Fidelity in Asia
2
1
3
4
3
|19 Fidelity Asian Fixed Income
Source: Fidelity International, 2019.
Is China any different? 3
Access to Issuers Data Integrity
State Owned Enterprises
Local Government Debt
Asymmetric information
ESG Defaults
Transaction costsCapital flows
Structural Subordination
Cultural differences Language Skills Political Risks
Investing in China
International Investors
|20 Fidelity Asian Fixed Income
85
90
95
100
105
110
Dez 1
6
Jun
17
Dez 1
7
Jun
18
Dez 1
8
Rebased t
o 1
00
Trade-weighted Index
CNYUSD
CNYEUR
0
1
2
3
4
5
6
7
8
Dec-1
3
Jun
-14
Dec-1
4
Jun
-15
Dec-1
5
Jun
-16
Dec-1
6
Jun
-17
Dec-1
7
Jun
-18
Dec-1
8
Yie
ld %
Overnight SHIBOR 1 Week SHIBOR
1 Month SHIBOR 3 Month SHIBOR
6 Month SHIBOR 9 Month SHIBOR
1 Year SHIBOR
2
4
6
8
10
12
De
c-1
4
De
c-1
5
De
c-1
6
De
c-1
7
De
c-1
8
Yie
ld %
AAA (Intl. rating AA/A)
AA (Intl. rating BBB/BB)
A (Intl. rating B)
Structural improvements
Key developments in China
Source: Bloomberg; Fidelity International, December 2018. Source: PBOC; Bloomberg; Fidelity International, December 2018. Source: Bloomberg; Fidelity International, December 2018.
Onshore credit differentiation Monetary policy mechanism Controlled currency
Nov 2015: Interest rate
corridor introduced
3
Past Performance is not a reliable indicator of future results. The value of shares may fluctuate and can not be guaranteed.
|21 Fidelity Asian Fixed Income
2,5
3,0
3,5
4,0
4,5
5,0
5,5
6,0
6,5
7,0
CGB 10Y Yield CDB 10Y Yield AAA 10Y Yield
Targeted easing to stabilize
financial system
Reflecting the evolution of the financial system
Chinese government bonds
Historical 10-year Chinese Government, Chinese Development Bank, and AAA Bond Yield
Source: Bloomberg, Fidelity International, 2019. 1) Wealth Management Products; 2) Macro Prudential Assessment
Rise in WMPs1), expansion of off-balance
sheet business by banksIntroduction of interest rate corridor and
MPA2); guiding rates lowerTargeted deleveraging through
monetary and regulatory tightening
3
Past Performance is not a reliable indicator of future results. The value of shares may fluctuate and can not be guaranteed.
|22 Fidelity Asian Fixed Income
Source: Fidelity International, January 2019.
Monetary easing bias to continue
China policy responses
1. Jan 2018: 1st targeted 50-100bps RRR cut
2. Apr: 2nd 100bps RRR cut
3. Early June: Medium-term Lending Framework (MLF) expanded to include lower grade AA+ and AA onshore corporate
bonds
4. Late June: 3rd RRR cut of 50bps across 5 SOE banks and 12 joint stock banks which would release around RMB500-700bn
liquidity into the market to support debt-to-equity program
5. Mid July: Providing banks with additional funding through MLF to support additional loan supply and buying of lower rated
onshore bonds
6. Mid July: Fine tuning Asset Management Product (AMP) rules
7. Early Oct: 4th 100 bps RRR cut
8. Late Oct: Launched public consultation for personal income tax deduction
9. Mid Nov: PBoC’s Shanghai unit will introduce more debt financing tools to support fundraising of POEs
10. Early Jan 2019: The PBOC delivered a blanket 100bps RRR cut
11. End Jan 2019: CBS (Central Bank Bills Swap) to improve liquidity of Bank’s perpetual bonds
INC
RE
AS
ING
EA
SIN
G B
IAS
3
|23 Fidelity Asian Fixed Income
Fidelity International
Chinese Bonds
Why are Chinese Bonds relevant for German investors?
Characteristics of Chinese Bonds
Risks to consider
Fidelity in Asia
2
1
3
4
4
|24 Fidelity Asian Fixed Income
Source: Fidelity International, 2018. *Fidelity International, 3Q18. * Includes Boston managed assets of $11.6bn of assets. 1) Chinese Government Bonds, 2) State Development Bank of China
Offering China focused strategies across the risk and return spectrum
Our product range continues to expand
Fidelity Asian fixed income strategies
Re
turn
Risk (volatility of returns)
FF-EM Corporate Debt Fund
FF-Asian High Yield Fund
FF-China High Yield Fund
F Enhanced Reserve Fund
FF-Asian Bond Fund
FF-China RMB Bond Fund
FF-Asia Pacific Strategic Income Fund
Income driven solutions
Stability driven solutionsDate Fund Launches
2007 Asian High Yield Fund (USD)
2011 China RMB Bond Fund (RMB)
2015 China High Yield Fund (USD)
2017 1st Onshore WOFE FI Private Fund
2018 Onshore CGBs1) & SDBCs2) Pool
Fund
2018 3rd Onshore WOFE FI Private Fund
▪ Managing bond assets since 1982, with
fixed income team structure in place
since 1995
▪ Established Asia FI since 2002
▪ $84.7bn fixed income AUM for
institutional, wholesale and retail clients
globally*
4
|25 Fidelity Asian Fixed Income
Source: Fidelity International, WIND, as of 3 February 2019. * Only available for onshore institutional or private clients
Fully integrated on-the-ground investment team
New onshore bond strategies
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
11%
12%
0
24
48
72
96
120
144
168
192
216
240
264
288
312
336
360
Onshore China Government Bond (CGB)
Onshore China Development Bank Bond (SDBC)
Onshore AAA Rated Corporate (~ AA/A Int'l Rating)
Onshore AA Rated Corporate (~ BBB/BB Int'l Rating)
Onshore A Rated Corporate (~ B Int'l Rating)
Years
0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30
Fidelity Multi-Asset onshore CGB-SDBC Pool
Fidelity China Bond No.1 Private Fund*
Fidelity China Bond Opportunity No.1 Private Fund*
Fidelity Asian Fixed Income Funds in Onshore China
Onshore China Bond Market Yield Curves
4
Past Performance is not a reliable indicator of future results. The value of shares may fluctuate and can not be guaranteed.
|26 Fidelity Asian Fixed Income
Kris Atkinson Bryan Collins Andy Falco Marty Dropkin Curtis Evans Tim Craigen Maria AbbonizioPortfolio Manager Head of Asian Fixed Income Head of Trading Head of Research Head of Inv Directing, European FI Director - FI Portfolio Construction & Risk Global Head of Operations, IM
James Durance Eric Wong Duncan Fraser Jan Berthold Katsumi Ishibashi Joe Hanmer Steve Bramley Henrietta Owusu-Banahene Olly FawcettPortfolio Manager Portfolio Manager Senior Trader Sovereign Analyst Director of Research Director of Quantitative Research Investment Director, UK, FI & Flex Strategies FI Portfolio Construction & Risk Analyst Head of PSG, Fixed Income, Europe
Chris Ellinger Morgan Lau Lars Salmon Tiago Parente Crystal Cui Matthew Hurd Andrea Iannelli Lina Katabi Jane SnooksPortfolio Manager Portfolio Manager Senior Trader Senior Credit Analyst Credit Analyst Senior Quantitative Analyst Investment Director, Southern Europe Quantitative Analytics Associate Team Leader, PSG
Ario Emami-Nejad Belinda Liao Bharat Choda Nathan Sribalasundram Chris Ding Nicolas Singer Rosie McMellin David Killpack Karl RangePortfolio Manager Associate Portfolio Manager Trader Research Associate Credit Analyst Quantitative Analyst Investment Director, UK Inst, FI Investment Risk Analyst PSG Analyst
Claudio Ferrarese Freddy Wong Sam Knight Andressa Tezine Claire Xiao Oli Shakir-Khalil Virginia Galloway Sarah RiwayehPortfolio Manager Portfolio Manager Trader Senior Sovereign Analyst Research Associate Investment Director, Emerging Market Debt Business Change Manager Senior PSG Analyst
Ian Fishwick Luc Froehlich Andrew Martin Federico Wynne Akash Tillu Amie Stow Sherene SmithPortfolio Manager Head of Investment Directing, Asia FI Trader Senior Credit Analyst Research Associate Investment Director, European FI & HY Senior PSG Analyst
Tim Foster Vanessa Chan Daniel Ushakov Gita Bal Adrian Chan Ilia Chelomianski Neil VisawadiaPortfolio Manager Investment Director Trader Director of Research Research Associate Investment Director, FI Solutions PSG Analyst
Andrei Gorodilov Kyle DeDionisio Stephen Whyman Rebecca Clements Nitesh Kathuria Ben Deane Gary WillisPortfolio Manager Investment Director Trader Senior Credit Analyst Director of Research Investment Specialist Operations Support
Paul Greer Isao Yashiro Jennifer Jackson Phillip Davies Ke Tang Faidra Kouri Elaine RogersPortfolio Manager Investment Director Associate Trader Credit Analyst Senior Credit Analyst Investment Specialist Office Administator
Peter Khan Stanley Shek Cristiana Gentea Sahil Kapoor Terrence Pang Daniel Missen Sandeep GrewalPortfolio Manager Associate Investment Director Associate Trader Research Analyst Credit Analyst Marketing and Design Manager PA
Rick Patel Giselle Lai Michail Vezyrtis Paul Louie Ming Gong Investment Fund Analysts Ray Cen Lianne FlorencePortfolio Manager Investment Specialist Trading Assistant Research Associate Credit Analyst Head of Fixed Income Analytics Senior Coordinator
David Simner Sabina Awan Rebecca Motta Alvin Cheng Rahul Kathuria L Richard Homer Gina PhillimorePortfolio Manager Trading Business Manager Senior Credit Analyst Credit Analyst Asst. Director, Investment Fund Analyst Senior Analytics Specialist Senior Coordinator
Sajiv Vaid James Anderson Paul Simenauer Jasmine Bhatia L Helmut Tang Sarah BrucePortfolio Manager Trading Data Analyst Credit Analyst Investment Fund Analsyt Senior Analytics Specialist Coordinator
Marton Huebler Olivia He Michael Dolan Apoorva Harsh L Nitika Sharma L Hamzah Begg Keith LauAssistant Portfolio Manager Trader Director of Research Associate Director - Research Investment Fund Analsyt Analytics Specialist Head of PSG - AP
Lucette Yvernault Juli Loh Lucy Van Amerongen Kavish Chauhan L Himanshu Batra L James Beldham Desmond ChanPortfolio Engineer & Team Leader Trader Research Associate Research Specialist Data Specialist Analytics Specialist PSG Senior Analyst
Karim Lamine Tae Ho Ryu Randy Cutler Abhishek Dhawan L Mansi Chauchan A Jean-Paul Efang Mbome Vincent ChengPortfolio Engineer Senior Trader Senior Credit Analyst Research Specialist Investment Fund Analsyt Analytics Specialist Senior PSG Analyst
Daniel Seimertz Natalie Hak Marco Gironi Akanksha Johari L Udit Gaur A Farshad Safael Roy TangAssociate Portfolio Engineer Associate Trader Senior Credit Analyst Research Specialist Investment Fund Analsyt Application Developer PSG Analyst
Wen-Wen Lindroth Sayan Mukherjee L Kevin Lo Emily LauSenior Credit Analyst Research Specialist Senior Analytics Specialist Coordinator
Jonathan Neve Champak Chakraborty L Ravinder Singh Rawat L Lily WooSenior Credit Analyst Research Specialist Data Specialist Coordinator
Olivier Simon-Vermot Minnie Dissoria L
Director of Research Research Specialist
Robert Glatt Rohit Sethi L
Credit Analyst Associate Research Specialist
Jason Senensky Ankit Gupta A
Credit Analyst Research Specialist
Smriti Smriti A
Research Specialist
Cody Chen A
Associate Research Specialist
Frank Huang A
Research Specialist
Angela Zhong A
Associate Research Specialist
Research Specialists
Akash Mahey
Steve EllisGlobal Chief Investment Officer, Fixed Income
Investment Graduates
AnalyticsMatthew Phillips
Wen Wei Tow
Niclas Nink
Olivia Martin
Daniel Youles
Young Choi
Lauren Song
Andy Ng
Moritz Natmessnig
Total* UK Canada Asia L Covers London142 85 3 54 A Covers Asia
Total UK Asia Total UK Asia Total UK Asia Total UK Canada Asia Total UK Asia Total UK Asia Total UK Asia Total UK Asia Total UK Asia Total UK Asia
19 14 5 3 3 0 16 12 4 33 19 3 11 13 0 13 4 4 0 22 10 12 2 2 0 21 14 7 9 7 2
Total UK Asia
10 5 5
Graduates
Tokyo
Hong
KongLondon
OFFICE LOCATIONS
Investment DirectingPortfolio Construction &
RiskAnalytics
Portfolio
Engineering GroupQuantitative ResearchTrading Research Specialists
GLOBAL FIXED INCOME
Portfolio Management
India China
Singa-
pore Canada
Credit Research
Source: Fidelity International 2nd Jan 2019
Operations / Risk / Business Management
Fixed Income Organisation Structure 4
Source: Fidelity International, 2019.
|27 Fidelity Asian Fixed Income
Summary
Chinese Bonds
Characteristics: Different but similar
Risk: Consider China like any other market
Fully integrated on-the-ground investment team
2
1
3
4
Why? ▪ Higher risk-adjusted returns
▪ Diversification benefits
▪ Alpha opportunities increasing
▪ Index inclusion
Appendix
|29 Fidelity Asian Fixed Income
China Generally supportive backdrop and manageable near-term risks
Growth still robust, albeit
moderating
Supportive fiscal and monetary
policy
Regulatory tightening
bias
Bad debt burden
Current Environment
What to watch?
RMB and Capital flows
Regulatory Environment
Consumption
Reference in this document to specific securities should not be construed as a recommendation to buy or sell these securities, but is included for the purposes of illustration only. Investors should also note that the views expressed may no longer be current and may have already been acted upon by Fidelity International.Source: Fidelity International, 2018.
Employment
Property
|30 Fidelity Asian Fixed Income
Source: Fidelity International, NAFMII, ADB, 2018.
Focus on CIBM (China Interbank Bond Market)
Onshore bond market structure overview
<10% of the total
onshore market
>90% of
the total
onshore
marketChina Foreign Exchange Trade System
(CFETS)
China Interbank Bond Market (CIBM) Exchange Market
Shanghai Stock
Exchange (SSE)
Shenzhen Stock
Exchange (SZSE)
Shanghai Clearing
House (SHCH)
China Central Depositary
& Clearing (CCDC)
PBoC China National Advanced Payments System
(CNAPS) and China Cross-Border Inter-Bank
Payment System (CIPS)
China Central Depositary
& Clearing (CCDC)
Commercial Banks
Institutional investorsIndividuals and small- & medium-sized
institutions
Market
Trading
Operators
Bond
Settlement
Cash
Settlement
Investor
Base
|31 Fidelity Asian Fixed Income
Source: PBoC, HKMA, Citi Research, 2018.
China “Bond Connect” mechanism
Mainland China
Hong Kong
SETTLEMENTTRADING
China Foreign Exchange
Trade System (CFETS)
Bond Connect Market Maker
Approved electronic platform Central Moneymarket Unit (CMU)
China Central Depositary & Clearing
(CCDC)/Shanghai Clearing House (SCH)
CMU Participant
HK or Overseas Investors Global Custodian
Operational
|32 Fidelity Asian Fixed Income
Source: Bloomberg, 31 January 2019.
Scope of local Chinese bonds that will be added
Chinese Treasury and Policy Bank Debt Being Included in the Global Aggregate Index
Issuer Ticker Count MV
(CNY tn.)
Amt Out
(CNY tn.)
MV
(USD tn.)
Amt Out
(USD tn.)
Duration
(Years)
YTW
(%)
China Government Bond CGB 159 10,400.5 9,992.7 1,551.0 1,490.2 6.69 3.00
China Development Bank SDBC 102 6,558.2 6,272.4 978.0 935.4 4.78 3.37
Agricultural Development Bank ADBCH 58 3,321.5 3,192.5 495.3 476.1 4.08 3.33
Export-Import Bank of China EXIMCH 45 2,002.0 1,926.4 298.6 287.3 3.86 3.31
Total 364 22,282.1 21384.0 3323.0 3189.0 5.49 3.19
|33 Fidelity Asian Fixed Income
China Duration Model
-40
-35
-30
-25
-20
-15
-10
-5
0
20
10
20
10
20
11
20
11
20
12
20
13
20
13
20
14
20
14
20
15
20
15
20
16
20
17
20
17
20
18
20
18
Dra
wdow
n (
bps)
Underwater Plot @ 25.05 bp
-1
0
1
2
3
4
5
6
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Information Ratio per year post transaction cost (ptc)
0,98
0,99
1,00
1,01
1,02
1,03
1,04
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
Performance by Signal
commocvncglobal_momentumgrowthliquiditymomentumreversion
Commo CvncGlobal
momentumGrowth Liquidity Momentum Reversion
Cvnc 0.51
Global momentum 0.50 0.61
Growth 0.36 0.69 0.43
Liquidity 0.17 0.16 0.24 0.25
Momentum 0.35 0.55 0.53 0.55 0.28
Reversion -0.32 -0.47 -0.47 -0.49 -0.22 -0.82
Slope -0.24 -0.31 -0.06 -0.27 -0.06 -0.03 -0.08
Signal Correlation (W)
0,99
1
1,01
1,02
1,03
1,04
1,05
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Cumulative Performance
pl pl_ptc
Source: Fidelity International, 31 January 2019. pl = profit and loss; ptc = post transaction cost
Past Performance is not a reliable indicator of future results. The value of shares may fluctuate and can not be guaranteed.
|34 Fidelity Asian Fixed Income
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