On 10 September 2014, Nikko Asset Management (Nikko AM) launched a bond fund called “Nikko AM China Onshore Bond Fund CNH”. It is denominated in CNH (Offshore Renminbi RMB), the offshore equivalent of Chinese Yuan CNY.
This fund invests primarily in RMB denominated fixed income instruments issued onshore in China. Their publicity material indicated monthly potential payouts of about 4% to 7% per annum.
This fund is being distributed by Bank of China and DBS Treasures. Risk rating for this product is P3 (by DBS) which is the centre of P1 to P5 risk ratings scale. P5 is the highest risk and P1 the lowest risk.
Risks of this product include beside financial instruments performance risk also carries foreign currency fluctuation risk. Investors can lose out if CNY or CNH nose-dived against Singapore dollar. However, when CNY strengthens, it is better for investors. To get a sense of foreign currency fluctuation, see the next segment.
Fluctuations in Chinese Yuan against Singapore dollar (SGD/CNY)
SGD/CNY exchange rates fluctuated between several peaks and troughs over the period from 2005 to now. See graph below. The lowest SGD/CNY ever reached was on 23 Feb 2009 at 4.4264 (1 SGD buys 4.4264 CNY). CNY was stronger against Singapore dollar. The highest it ever touched was on 18 July 2011 at 5.3395. CNY was weaker than Singapore dollar.
The table below shows some rates picked up from the graph. The SGD/CNY column shows how much One S$ is worth in CNY and the CNY/SGD column shows the inverse, ie how much One CNY is worth in S$. For this year, SGD/CNY fluctuated between 4.723 and 5.001. The last traded rate was 4.848 on last Friday (19 September 2014).
Please seek advice from accredited financial advisors before jumping in.
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