Tags: advani | china | yuan | dim sum

Dim Sum Goes Global – Buy and Prosper

Wednesday, 28 Mar 2012 09:47 AM

By Ashish Advani

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You must be wondering why I am asking you to buy Dim Sum, the Chinese delicacy food item that I personally relish.

Today we will talk about investing in bonds. Hold on, before you stop reading about another investment strategy into the worthless US bond markets. I am talking about Dim Sum bonds.

Honestly, much that I like Dim Sum, I do not consider this as an asset class that we can diversify our investments in. I do want to talk to you about investing in bonds that are being issued in Chinese yuan that are increasingly becoming popular across the globe.

Before I launch into this investment, I want to bring you some breaking news.

I have often talked to you about the stealth-like moves of the Chinese Renminbi (RmB) which is on a longish track to dislodge the US dollar as the reserve currency. I say ‘longish’ because this is a long-drawn and patient move, not a slash and grab immediate move. It has been ongoing for about 4 years now, and I expect it may reach its goal in another 4-5 years.

I have talked about the Chinese signing bilateral currency treaties with several nations to trade in local currency, bypassing the US dollar. Last week, the Chinese scored a very symbolic victory. China has now signed a bilateral currency treaty with Australia worth about $29 billion to trade goods and services with each other in local currencies and not have to settle their trade balances in US dollar. The amount is quite small, but the Chinese have now got one of the G-7 nations to buy into the anti-US dollar plan. It is only a matter of time before others follow and the lines become significant in values.

Back to the Dim Sum bonds. As a start of making the RmB popular around the world before it is opened up as a freely traded currency, China had started a limited RmB cash program in Hong Kong to test the waters for the demand for RmB outside China. When these accounts blossomed, China started free trade account exchange of the RmB between Hong Kong and China. Popularity grew even more, and soon enough Western companies started sniffing around the possibilities of issuing debt denominated in RmB out of Hong Kong. Hence the Dim Sum bonds were born. Ironically, McDonald's was one of the first Western companies to issue Dim Sum bonds in Hong Kong.

I would not blame them, as the RmB is a more steady currency (manipulated as it may be) and is not prone to devaluation as the US dollar is. As this market has now passed the fledgling stages, the rest of the world’s financial centers are chomping at the bit to participate in this growing market. In a race to the top, last week London has announced that it will participate in the issuance of Dim Sum bonds in London. And we have the likes of Brazil and Dubai also wanting to take a piece of that action.

As you can see, this is not a fad anymore. This segment is here to stay and grow. As a retail investor you can participate in this bond program. HSBC and Barclays have issued Dim Sum bond funds, where we can buy into RmB bonds like an ETF.

I am looking to this as another means of diversifying my investments and would like to invite you to do your research and consider buying a few ETF shares of the Dim Sum bonds.

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