From the CIO Office “Big ships often sail on big debts” · EMIRATES NBD WEALTH MANAGEMENT...

WEALTH MANAGEMENT

From the CIO Office

“Big ships often sail on big debts”(Chinese proverb)

OPPORTUNITIES TO INSPIRE 2

EMIRATES NBD WEALTH MANAGEMENT “BIG SHIPS OFTEN SAIL ON BIG DEBTS”

Is China a wall of worries for financial markets?

Emirates NBD CIO-Office June 2018

The People’s Republic of China’s(PRC) bond market is the 3rdlargest in the world and ranks 1stwithin Emerging Markets. Itsissuances are largely dominated bygovernment and quasi-government.

There are six major types ofinstruments traded:

(i) Ministry of Finance (MOF)-issued China GovernmentBonds

(ii) People’s Bank of China (PBC)paper

(iii) Financial bonds issued bygovernment-backed policybanks and financial institutions

(iv) Corporate bonds issued bydomestic corporations

(v) Commercial paper, issued byeither securities firms or privatecorporations

(vi) Medium-term notes

There are two main bondmarkets: the interbank bondmarket and the exchangemarkets – Shanghai StockExchange and Shenzhen StockExchange. The interbank bondmarket is China’s over-the-counter(OTC) market. Interbank andexchange bond markets usedifferent methods to serve variousinvestors.

PRC bond markets are generallyclosed to foreign issuers, investors,and intermediaries, except forinvestments via Qualified ForeignInstitutional Investors (QFIIs).QFIIs are foreign institutionsallowed by the China SecuritiesRegulatory Commission (CSRC) toinvest in the local securitiesmarket. These institutions aregranted investment quotas by theState Administration of ForeignExchange (SAFE).

Historically, it has always beenconvenient for internationalinvestors to invest in the offshoreChina bond market, but thanks tostrengthening of regulation andsupervision as well as growing sizeand depth, domestic onshoremarket has dramatically evolvedand attracts a growing interest fromglobal investors.

11USD

trillion

valued over

CHINA BONDMARKET

.....................................

China’s bond market is now valuedover USD 11tn, and foreigninvestors hold just under 2 percentof the total, leaving ample room forinternationalisation.

Bill

ion

US

D

USA Japan China UK France Italy0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

Source: Bank for International Settlements (BIS) as of December 2017

Exhibit 1: Total debt securities outstanding by major borrowers.China size has to be relativised

> China’s debt level and growth are manageable

> Monetary policy setting – a robust and credible framework

> Authorities are curbing excessive borrowings and leverage

> Non-financial leverage is a well identified issue, wisely dealt with by authorities

> Bond connect program – a right move in the right direction

> YTD, Chinese debt has been the best performer, returning over 5% to bond investors

> Prefer Chinese banks (the Big 4) and corporate IG issuers


OPPORTUNITIES TO INSPIRE 3Emirates NBD CIO-Office June 2018


China has a state-controlledeconomy which explains why mostbonds are issued by state-ownedentities (SOE).

Debt creation has been apredominant driver for Chinesegrowth, funding fixed capitalinvestment, especially in the last 2decades. The sustainability of debtis linked to the ability of theeconomy to keep growing with aslower pace of debt creation To thatextent, China remains as one of thefastest growing economies in theworld despite a moderation in isdebt fueled fixed capitalinvestments.

Over the last four decades, Chinahas emerged among the worldlargest super-powers, due toambitious political reforms, whichhave seen the country masteringdifferent phases of globalisation. InOctober 2016, the IMF added theChinese Renminbi (RMB) to thebasket of currencies that make upthe Special Drawing Right. TheSDR is an international reserveasset created by the IMF in 1969 tosupplement its member countries’official reserves. The RMB joins theSDR basket in addition to thepreviously included fourcurrencies—the US dollar, theeuro, the Japanese yen, and theBritish pound.

The Chinese Renminbi has a10.92% weight on the SDR basket.So far SDR 204.2bn (equivalent toabout USD 291bn) have beenallocated to members, includingSDR 182.6bn allocated in 2009 inthe wake of the global financialcrisis.

China

Rea

l GD

P g

row

th a

nnua

l % c

hang

e

US MENA WorldDev. Nations (G7)

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

0

2

4

6

8

10

12

Source: IMF

Exhibit 2: China growth differential to the rest of the majoreconomies cannot be ignored

1500

3500

5500

7500

9500

11500

13500

100%

120%

140%

160%

180%

200%

220%

240%

260%

280%

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

Debt to GDP (LHS) GDP, current prices (USD bn)Source: IMF, Bloomberg

Exhibit 3: China total debt to GDP has risen sharply in the lastdecade together with GDP growth

Household

Deb

t to

GD

P %

Non FinancialCorporates

Government FinancialCorporates

0

20

40

60

80

100

120

140

160

180

46.7

163.2

46.538.4

Source: Institute of International Finance

Exhibit 4: Sectoral breakdown on China’s debt burden





While we see this as an essentialmilestone in the integration of theChinese economy into the globalfinancial system and a testimony toits higher standards, the Chinesemarkets have not significantlybenefitted from this inclusion.

With global central bank’s policytransitioning and recent headwindscaused by tighter monetary policies,markets have recently adjusted forthe required risk premium on manyof the countries faced withidiosyncratic risks and fiscalimbalances. However, China is wellplaced to deal with such pressuresand still has a huge FX reserve base(USD 3.24tn) and a robust externalposition. The capital account is stillvery controlled, and policymakershave demonstrated prudent fiscaland monetary policies, with manytools at their disposal to respond toany economic headwinds.

The successful internationalisationof the RMB is linked to its adoptionin cross border trades for actualpayments. The common fear of apotential devaluation is certainlyone of the reasons why it hasn’tbeen widely adopted yet.

As regards to listed securitieshowever, foreign holdings ofChinese stocks and bonds haverisen exponentially in the last fiveyears with equities accounting forthe lion’s share. The Bond connectprogram, and the surge in pandabond issuance are some of themost recent reforms that the nationimplemented to foster and enablebroader international participationand capital flows.

The yields on the Chinese bondshave remained well insulated andcontained under the 4 percent level

YTD, despite the various volatilityepisodes which have affectedemerging markets, linked to USdollar and rates. The benchmarkten-year bond yield is currently at3.6%, a sharp increase after therecord low of 2.7% percent inSeptember 2016. Our preferencewithin Chinese bond issuers wouldgo to financials and across theinvestment-grade corporates. Whilethe deleveraging processcontinues, corporate balancesheets are sound while valuationson a risk-adjusted basis arecompelling.

While the deleveragingprocess continues, corporatebalance sheets are sound

Inte

rest

Rat

es %

PBOC 7-DayReverse Repo

1-Year Medium-termLending Facility

1-Year BenchmarkLending Rate

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

2.4 2.6

3.2 3.3

4.4 4.4

27 April 2017 27 April 2018

Source: Bloomberg as of 27 April 2018

Exhibit 5: China Policy Rates – Credible and prudent monetarypolicy setting by PBOC




In a period where the US Fed hasembarked on tighter monetarypolicies, hiking rates and shrinkingtheir balance sheet, EM outflowshave exacerbated, especially in thelast six to nine months. However,Chinese policymakers haveremained committed to their agendaand implementation framework, andensured financial stability to theChinese economy. This factualresilience is for us proof thatChinese authorities have a firm gripon the entire financial system anddon’t lose control. The constantmarket intervention, active FXcontrol triggers, rules and flexibilityon the reserve requirement ratios(RRR) to name a few tools, assureproper management and abundantliquidity for economic activity. Theauthorities have also kept monetarypolicy in a neutral stance as theycontinue to clamp down on highcorporate debt levels and riskylending practices to prevent anydamage to the financial system.

Although the nation’s recent officialeconomic data remains upbeat,policymakers are starting to balanceconcerns about economic conditionsalongside their longstandingcommitment towards containingcredit & curbing excess borrowings.So far, results show that thedeleveraging process is in progresswithout hurting the economy.

China aggregate bond index (CNY, LHS)

Yie

ld %

Rates %

FED Funds rate

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

2.0

2.5

3.0

3.5

4.0

4.5

5.0

Jul-16

Aug-16

Sep-16

Oct-16

Nov-16

Dec-16

Jan-17 Feb-17

Mar-17

Apr-17

May-17

Jun-17

Jul-17

Aug-17

Sep-17

Oct-17

Nov-17

Dec-17

Jan-18 Feb-18

Mar-18

Apr-18

May-18

Source: Bloomberg as of 2 June 2018

Exhibit 6: Higher US policy rates have not been a major concernfor Chinese bonds.

Inde

x (P

rice)

170

180

190

200

210

220

230

2012 2013 2014 2015 2016 2017 2018 2019


Exhibit 7: CNY denominated debt from Treasury, Govt relatedincluding policy banks, and corporate issuers listed onthe China interbank market.





5.0

5.5

6.0

6.5

7.0

7.5

8.0

8.5

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

US

D/C

NY

April 2006: QDII grants Chinese to overseas capital markets

April 2012: PBOC widens yuan trading band to 1% from 0.5%

July 2013: PBOC scraps lending rate floor

October 2016: Yuan joins IMF SDR

2016: PBOC adopts macro prudential assessment framework

October 2015: PBOC scraps lending rate ceiling

June 2015: China’s stock market bust

March 2018: Yi Gang named PBOC Governor

July 2017: Financial Work Conference focusses on deleveraging

August 2015: Yuan devaluation roils global markets

March 2014: PBOC widens yuan trading band to 2% from 1%

July 2005:PBOC relaxes yuan peg to USD, begins appreciation

June 2010:Yuan exchange rate reform resumes

2008:PBOC adds monetary stimulus, pegs yuan to USD during global financial crisis


Exhibit 8: Evolving fundamentals and active managed FX by PBOC

The Yuan has been on a longjourney from pegged andundervalued to something closer tofloating and fairly valued. The day-to-day interventions that thePeople's Bank of China used tomanage the currency have come toan end. Today, policymakers have awide array of options for steeringthe currency: setting the daily fixingrate, using verbal guidance to signala change in direction, playing withliquidity in the offshore yuan marketor even managing capital controls.

5%

7%

9%

11%

13%

15%

17%

19%

21%

23%

19871988198919901991199219931994199519961997199819992000200120022003200420052006200720082009201020112012201320142015201620172018

One of the many tools for easing liquidity conditions


Exhibit 9: A powerful resource – Required Deposit Reserve Ratio(RRR)

Today, policymakershave a wide array ofoptions for steeringthe currency




The overall Chinese governmentdebt position remains wellcontained and in our viewmanageable across both centraland local borrowers. The primaryconcern lingers around thecorporate sector leverage and itsmounting debt.

The reduction on the corporatedebt would inevitably haveramifications to businessinvestments and lead to a drag onChina’s economic growth. China’spolicymakers have beenaggressive in their drive to reducethe corporate debt mountain,intensifying their efforts toimplement measures to curbborrowing. As a result, outstandingoff-balance sheet lending hasfallen by 100bn yuan in the firstfour months of 2018, having grownby 2.2tn yuan in the same periodlast year.

Despite many headwinds on globaltrade and the current threats oftariffs from the US, China still is thesecond largest holder of USsecurities in the world. Thisportfolio of US assets has onlybeen growing in the last decade.

US

D b

n

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

0

200

400

600

800

1000

1200

1400

Source: Bloomberg (Reported Treasury holdings as of 31 March 2018)

Exhibit 12: China holdings of US securities as of 31 March 2018.No signs of reduction

China

GD

P G

row

th

Global GDP Growth

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

20102011

2012

2013

2014

2015

2016

2017

2018E

2019E

2020E

2021E

2022E

2023E

-1%

1%

3%

5%

7%

9%

11%

13%

15%

5.5

3.7

6.9

3.8

Source: IMF

Exhibit 11: IMF estimates China’s economic expansion likely toslow to 6.6% this year and to about 5.5% by 2023 onback of curbs on investment and deleverage

Household Debt Non-Financial CorporatesGovernment Financial Corporates

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

0%

50%

100%

150%

200%

250%

300%

Source: IIF data as of December 2017

Exhibit 10: The non-financial corporate is the major concern.Reforms on deleveraging is critical

China still is thesecond largestholder of USsecurities in the world


Special Drawing Right (SDR)



What is SDR?The SDR is an international reserveasset, created by the IMF in 1969 tosupplement its member countries’official reserves. So far SDR204.2bn (equivalent to about USD291bn) have been allocated tomembers, including SDR 182.6bnallocated in 2009 in the wake of theglobal financial crisis. The value ofthe SDR is based on a basket of fivecurrencies – the US dollar, the euro,the Chinese renminbi, the Japaneseyen, and the British pound sterling.

A basket of currencies determinesthe value of the SDRThe SDR was initially defined asequivalent to 0.888671 grams offine gold – which, at the time, wasalso equivalent to one US dollar.After the collapse of the BrettonWoods system, the SDR wasredefined as a basket of currencies

The SDR basket is reviewed everyfive years, or earlier if warranted, toensure that the SDR reflects therelative importance of currencies inthe world’s trading and financialsystems. The reviews cover the keyelements of the SDR method ofvaluation, including criteria andindicators used in selecting SDRbasket currencies and the initialcurrency weights used indetermining the amounts (numberof units) of each currency in theSDR basket. These currencyamounts remain fixed over the five-year SDR valuation period but theactual weights of currencies in thebasket fluctuate as cross-exchangerates among the basket currenciesmove. The value of the SDR isdetermined daily based on marketexchange rates. The reviews arealso used to assess theappropriateness of the financialinstruments comprising the SDRinterest rate (SDRi) basket.

CRITERIA FOR INCLUSION IN THE SDR BASkET

Export criterion:Issuer of currency is an IMF member or a monetary union thatincludes IMF members, who is one of the top five exporters of theworld.

Determined to be “freely usable” currency by the IMF:Currency is widely used to make payments for internationaltransactions and widely traded in the principal exchange markets

2015 SDR REvIEW

SDR valuation and SDRi basket compositionEffective 1 October 2016, the Chinese RMB was included in the SDRbasket, and the three-month benchmark yield for China Treasurybonds was included the SDRi basket.

The inclusion of the RMB in the SDR basket has diversified the basketand made its composition more representative of the world’s majorcurrencies.

Weighting formulaA new formula – assigning equal shares to the currency issuer’sexports and a composite financial indicator – was adopted todetermine the currency weights in the SDR basket.

Operational implications Since 1 October 2016, the RMB is a freely usable currency and canbe used in Fund financial transactions.

So far SDR204.2bn havebeen allocatedto members

During the last review concluded inNovember 2015, the Board decidedthat the Chinese renminbi (RMB)met the criteria for inclusion in theSDR basket. Following this decision,the Chinese RMB joined the USdollar, euro, Japanese yen, andBritish pound sterling in the SDRbasket, effective 1 October 2016.

Special Drawing Right (SDR)



Currency Weights determined in the2015 review

Fixed number of currency units5-year period starting 01.10. 2016

US Dollar 41.73 0.58252

Euro 30.93 0.38671

Chinese Yuan 8.33 1.0174

Japanese Yen 8.09 11.9

Pound Sterling 10.92 0.085946

Exhibit 13:

Source: IMF website

SDR valueThe SDR value in terms of the US dollar is determined daily based on the spot exchangerates observed at around noon London time, and posted on the IMF website.


Bond Connect – Bridging east to west



Bond Connect is a new mutualmarket access scheme that allowsinvestors from Mainland China andoverseas to trade in each other'sbond markets through connectionbetween the related Mainland andHong Kong financial infrastructureinstitutions.

Bond Connect has developed intoan important access channel forinternational investors to tap theChina Interbank Bond Market(CIBM). By the end of Q1 2018, atotal number of 288 overseasinstitutional investors had enteredthe China interbank bond marketthrough Bond Connect.

Various types of investors fromnearly 30 jurisdictions have joinedthe scheme. Products issued byinternational investors account forhalf of the accounts in BondConnect, while international banksand other investors share the otherhalf almost equally. Hong Kong SARhad the largest number of registeredaccounts (around 66%) followed byTaiwan (9.5%), Singapore (5.6%),the United States (4.9%), the UnitedKingdom (3.6%), and other locationslike Ireland, Germany, France,Luxembourg, Australia, Japan,South Korea, Dubai etc (10.6%).

Trading through Bond Connect kept

growing in Q1 2018, reaching a totalvolume of RMB 162.58bn with aquarter-on-quarter increase of7.23%. Purchase by overseasinvestors accounted for 67.5% ofthe volume. The most activeoverseas institutional investorswere commercial banks andinvestment products, while the mostactive onshore dealers weredomestic large commercial banksand foreign banks. The most tradedtypes of bonds were negotiatedcertificates of deposit (NCD), policyfinancial bonds, and Treasurybonds. The maturities of tradedbonds were mainly within 1 year, 7-10 years, and 1-3 years.

* Refers to the total foreign holdings including but not limited to holdings through Bond Connect.Source: Bond Connect as of April 2018

Foreign Holdings*(Month-end, RMB bn)

Shanghai ClearingHouse (SHCH)

China Central Depository& Clearing (CCDC) Total

Apr-18 222 1,153 1,375

Mar-18 218 1,087 1,305

Feb-18 210 1,066 1,277

Jan-18 209 1,037 1,246

Dec-17 173 974 1,147

Nov-17 171 937 1,107

Oct-17 184 921 1,106

Sep-17 165 896 1,061

Aug-17 108 857 965

Jul-17 41 842 882

Jun-17 39 804 843

Exhibit 14: Trading volumes pick up steam since the launch of “Bond Connect”

Bond Connect Launch

China’s upcoming bond redemption statistics vs emerging markets



Exhibit 15: Bond maturity profile on public, financial and non-financial corporates – all currencies

US

D b

n

China EM Aggregate (Includes China)*2018 2019 2020 2021 2022 2023 2024 2025

0

200

400

600

800

1000

1200

1400

715

1146

844

1284

727

1130

589

915

498

861

300

520

313

534

176314

Source: Bloomberg

Exhibit 16: Bond maturity profile on public, financial and non-finanical corporates – USD-denominated

US

D b

n

2018 2019 2020 2021 2022 2023 2024 20250

50

100

150

200

250

300

61

183

81

234

95

244

44

189

67

246

21

130

24

118

25

90

China EM Aggregate (Includes China)*Source: Bloomberg

Exhibit 17: Bond maturity profile on financials – all currencies

US

D b

n


050

100

150200250300

350400450

239

404

240

395

260

406

129

212

106

222

52

104125

180

75109

Source: Bloomberg

* EM Aggregate covers all bond redemptions from Argentina, Brazil, Chile, China, Colombia, Czech Republic, Egypt, Ghana, Hong Kong, Hungary, India, Indonesia, Israel, Kenya, Malaysia, Mexico,Nigeria, Pakistan, Poland, Russia, Saudi Arabia, Singapore, South Africa, Thailand, Turkey.

China’s upcoming bond redemption statistics vs emerging markets



Exhibit 18: Bond maturity profile on financials – USD-denominated debt

US

D b

n


0102030405060708090

100

29

60

37

74

50

86

18

49

33

86

6

22

9

27

1421

Source: Bloomberg

Exhibit 19: Bond maturity profile on sovereign – all currencies

US

D b

n


0

50

100

150

200

250

300

350

400

106

176

252

346

210

279 279

373

256

339

190

254

143

206

64

116

Source: Bloomberg

Exhibit 20: Bond maturity profile on sovereign – USD-denominated debt

US

D b

n


0

10

20

30

40

50

60

1

21

7

54

5

37

4

47

6

49

37

2

29

1

30

Source: Bloomberg

* EM Aggregate covers all bond redemptions from Argentina, Brazil, Chile, China, Colombia, Czech Republic, Egypt, Ghana, Hong Kong, Hungary, India, Indonesia, Israel, Kenya, Malaysia, Mexico,Nigeria, Pakistan, Poland, Russia, Saudi Arabia, Singapore, South Africa, Thailand, Turkey.

The Belt and Road Initiative (BRI)



The Belt and Road Initiative: Six economic corridors spanning Asia, Europe & Africa

China-Mongolia-Russia Economic Corridor

New Eurasia Land Bridge Economic Corridor

China-IndochinaPeninsular Economic

Corridor

Bangladesh-China-India-Myanmar

Economic Corridor

China-Central Asia-West Asia Economic

Corridor

China-PakistanEconomic Corridor

The Belt and Road Initiative refers tothe Silk Road Economic Belt and21st Century Maritime Silk Road, asignificant development strategylaunched by the Chinesegovernment with the intention ofpromoting economic co-operationamong countries along the proposedBelt and Road routes. The Initiativehas been designed to enhance theorderly free-flow of economic factorsand the efficient allocation ofresources. It is also intended tofurther market integration and createa regional economic co-operationframework of benefit to all.

The Belt and Road Initiative aims toconnect Asia, Europe and Africaalong five routes.

The Silk Road Economic Beltfocuses on:1. Linking China to Europe throughCentral Asia and Russia

2. Connecting China with the MiddleEast through Central Asia and

3. Bringing together China andSoutheast Asia, South Asia andthe Indian Ocean

The 21st Century Maritime SilkRoad, meanwhile, focuses onusing Chinese coastal ports to:4. Link China with Europe throughthe South China Sea and IndianOcean and

5. Connect China with the SouthPacific Ocean through the SouthChina Sea.

Focusing on the above five routes,the Belt and Road will takeadvantage of international transportroutes as well as core cities andkey ports to further strengthencollaboration and build sixinternational economic co-operation corridors. These havebeen identified as the New EurasiaLand Bridge, China-Mongolia-Russia, China-Central Asia-WestAsia, China-Indochina Peninsula,China- Pakistan, and Bangladesh-China-India-Myanmar.

The five major goals of the Beltand Road Initiative are: policy co-ordination, facilities connectivity,unimpeded trade, financialintegration, and people-to-peoplebonds.

In terms of specifics, policy co-ordination means that countriesalong the belt and road will, viaconsultation on an equal footing,jointly formulate developmentplans and measures for advancingcross-national or regional co-operation; resolve problemsarising from co-operation throughconsultation; and jointly providepolicy support to practical co-

operation and large-scale projectimplementation.

The Silk Road FundThe USD 40bn Silk Road Fund hasbeen established to finance the Beltand Road Initiative. It will investmainly in infrastructure andresources, as well as in industrialand financial co-operation. TheFund was set up as a limited liabilitycompany in December 2014 with itsfounding shareholders includingChina’s State Administration ofForeign Exchange, the ChinaInvestment Corp, the Export-ImportBank of China and the ChinaDevelopment Bank.

The Fund will comply with marketrules and the international order offinance, and welcome participationfrom domestic and overseasinvestors, such as the China-AfricaDevelopment Fund and the AsianInfrastructure Investment Bank.

The first capital installation of theFund amounts to USD 10bn. On 14May 2017, President Xi Jinpingdelivered a keynote speech at theopening ceremony of the “Belt andRoad Forum for International Co-operation”, and announced thatChina would contribute anadditional 100bn yuan to the SilkRoad Fund.

A guide to the most sought out benchmark Chinese Eurobond yields



ISIN Issuer MaturityCurrency LastPrice

FixedCoupon

XS1808311424 LOGAN PROPERTY HOLDINGS USD 04.24.2021 6.875 98.88XS1157365070 SHIMAO PROPERTY HLDGS USD 02.10.2022 8.375 106.31USG22004AB41 CNPC GENERAL CAPITAL LTD USD 04.19.2022 3.950 101.20XS1625981045 NEW METRO GLOBAL LTD USD 08.08.2022 5.000 90.25XS1556169206 KWG PROPERTY HOLDING LTD USD 09.15.2022 6.000 93.30XS0890073991 AZURE ORBIT INTL FINANCE USD 03.06.2023 3.750 99.36XS1810024338 SUNAC CHINA HOLDINGS LTD USD 04.19.2023 8.350 95.98USG8200QAB26 SINOPEC GRP OVERSEA 2013 USD 10.17.2023 4.375 102.54XS1023280271 WANDA PROPERTIES INTL USD 01.29.2024 7.250 99.33XS1113240268 BANK OF COMMUNICATIONS USD 10.03.2024 4.500 100.58US06120TAA60 BANK OF CHINA USD 11.13.2024 5.000 102.40XS1750118462 COUNTRY GARDEN HLDGS USD 01.17.2025 5.125 92.66XS1788514039 CNAC HK FINBRIDGE CO LTD USD 03.14.2025 4.875 99.89XS1227820187 CHINA CONSTRUCTION BANK USD 05.13.2025 3.875 99.50USY39656AC06 IND & COMM BK OF CHINA USD 09.21.2025 4.875 101.95XS1567423766 PROVEN GLORY CAPITAL LTD USD 02.21.2027 4.000 94.01XS1644429935 CNAC HK FINBRIDGE CO LTD USD 07.19.2027 4.125 93.19XS1711550373 HUARONG FINANCE 2017 CO USD 11.07.2027 4.250 93.66US01609WAT99 ALIBABA GROUP HOLDING USD 12.06.2027 3.400 94.50US88032XAG97 TENCENT HOLDINGS LTD USD 01.19.2028 3.595 95.38US12634MAE03 CNOOC FINANCE 2015 US USD 05.02.2028 4.375 101.14US01609WAV46 ALIBABA GROUP HOLDING USD 12.06.2047 4.200 94.43XS1684793018 POSTAL SAVINGS BK CHINA USD Perpetual 4.500 93.84USY39656AA40 IND & COMM BK OF CHINA USD Perpetual 6.000 102.63XS1257592037 BANK OF COMMUNICATIONS USD Perpetual 5.000 99.58

Exhibit 21: Fixed Rate Instruments

ISIN Issuer MaturityCurrency CurrentSpread

CurrentCoupon

Exhibit 22: Floating Rate Bonds

Source: Bloomberg pricing as of 4 June 2018

Source: Bloomberg pricing as of 4 June 2018

XS1596795275 HUARONG FINANCE 2017 CO USD 04.27.2020 4.02 98XS1804839931 BANK OF CHINA/SINGAPORE USD 04.17.2021 3.10 68XS1810003332 ICBCIL FINANCE CO LTD USD 05.15.2021 3.29 92XS1832936055 CHINA CONSTRUCT BANK/HK USD 06.08.2021 3.04 73XS1711550290 HUARONG FINANCE 2017 CO USD 11.07.2022 3.51 108US88032XAJ37 TENCENT HOLDINGS LTD USD 01.19.2023 2.96 54XS1789639884 CHINA MINSHENG BKG/HK USD 03.09.2023 3.11 103XS1805611966 IND & COMM BK CHINA/SG USD 04.16.2023 3.20 81XS1823770828 VANKE REAL ESTATE HK USD 05.25.2023 3.88 143XS1832939406 CHINA CONSTRUCT BANK/HK USD 06.08.2023 3.15 82

A guide to the most sought out benchmark Chinese Eurobond yields



Z Spread Yield toNext Call Moody'sYield to

MaturityPayment

RankS&P

447 8.53 7.31 N/A N/A Sr Unsecured239 4.89 6.41 Ba3 BB Secured72.8 – 3.61 A2 A Sr Unsecured489 11.20 7.78 Ba2 N/A Sr Unsecured498 11.80 7.87 N/A B Secured99.3 – 3.89 A2 A- Sr Unsecured649 11.20 9.39 B3 N/A Secured92.8 – 3.84 A1 A+ Sr Unsecured447 – 7.39 Ba3 B+ Sr Unsecured128 4.04 5.23 N/A N/A Subordinated163 – 4.56 Baa2 BBB+ Subordinated357 8.13 6.50 N/A N/A 1st lien195 – 4.89 N/A BBB Sr Unsecured138 4.14 4.86 N/A BBB+ Subordinated161 – 4.55 Baa2 BBB+ Subordinated188 – 4.85 N/A N/A Sr Unsecured209 – 5.06 N/A BBB Sr Unsecured212 – 5.10 Baa1 N/A Sr Unsecured112 4.12 4.10 A1 A+ Sr Unsecured119 4.19 4.18 A1 A+ Sr Unsecured124 – 4.23 A1 A+ Sr Unsecured153 4.54 4.54 A1 A+ Sr Unsecured324 6.16 5.54 Ba2 N/A Jr Subordinated135 4.13 6.85 Ba1 BB- Jr Subordinated241 5.20 5.99 Ba3 N/A Jr Subordinated

IndicativeYield Moody's S&PFitch Reset

IndexFloaterSpread

3.31 Baa1 A NR 165.0 US0003M3.00 A1 A A 75.0 US0003M3.24 A2 NR A 95.0 US0003M3.04 A1 NR NR 73.0 US0003M3.40 Baa1 A NR 115.0 US0003M2.86 A1 A+ A+ 60.5 US0003M3.34 NR NR BBB- 105.0 US0003M3.12 A1 NR NR 85.0 US0003M3.75 Baa2 BBB+ BBB 155.0 US0003M3.13 A1 NR NR 83.0 US0003M


Interesting Facts

China has a population of 1.36 bn people & 20%of all human beings alive today are Chinese.By way of comparison, Americans account forless than 4.5% of the global population.

China was the world’s largest economy in 1820,and is the second largest economy today.

China's economy grew 7 times as fast asAmerica's over the past decade (316% growthvs. 43%).

China is the world’s largest exporter and thesecond largest importer of merchandise goods.

The Three Gorges Dam: The largest dam yetbuilt, created a reservoir the size of theKingdom of Bahrain. It holds back some 39.3cubic kilometers of water. The dam is so bigthat its construction slowed the rotation of theentire planet.

There are currently 30mn people in China stillliving in caves equivalent to the entirepopulations of Australia and New Zealandcombined.

The Army (The Peoples Liberation Army) hasan Official Division of 10,000 Pigeons. Theyhave been tasked with “special militarymissions” along the nation’s borders.



Interesting Facts

China has only One Time Zone: China isroughly the same size as the US. It is overtwice as big as the entire European Union. Itdwarfs Australia. Each of those comparativenations/unions has at least 3 time zones, andas many as five. China, on the other hand hasonly one.

There are more Christians living in China thanin Italy and the Vatican City combined, eventhough 80% of Italians are Christian and only5.1% of Chinese are.

China's GDP is 19,758 times greater than theisland of Dominica, but the two countries haveroughly the same GDP per capita.

A developer in China built a complete 57-storyskyscraper in just 19 days. The building has 800apartments and enough office space for 4,000people. It was originally supposed to be taller(220 stories), but the plans were shaved downdue to the building's proximity to an airport.

China has a knockoff Goldman Sachs inShenzhen.

When you buy Chinese stocks, you arebasically financing the Chinese government.Eight of Shanghai's top ten stocks aregovernment owned.


Syed Yahya SultanHead of Fixed Income StrategyCIO Office | Wealth Management

Email: [email protected]: +971 4 609 3724Mobile: +971 55 886 3947

Maurice Jean Marie GravierChief Investment OfficerCIO Office | Wealth Management

Email: [email protected]: +971 4 609 3739Mobile: +971 50 255 3739

Source: various websites (www.businessinsider.com, www.weforum.org)



Disclaimer

RelianceEmirates NBD Bank PJSC (“Emirates NBD”) uses reasonable efforts to obtain informationfrom sources which it believes to be reliable, however, Emirates NBD makes norepresentation that the information or opinions contained in this publication are accurate,reliable or complete and should not be relied on as such or acted upon without furtherverification. Opinions, estimates and expressions of judgment are those of the writer andare subject to change without notice. Emirates NBD accepts no responsibility whatsoeverfor any loss or damage caused by any act or omission taken as a result of the informationcontained in this publication. Data/information provided herein are intended to serve forillustrative purposes and are not designed to initiate or conclude any transaction. Inaddition this publication is prepared as of a particular date and time and will not reflectsubsequent changes in the market or changes in any other factors relevant to thedetermination of whether a particular investment activity is advisable. This publicationmay include data/information taken from stock exchanges and other sources from aroundthe world and Emirates NBD does not guarantee the sequence, accuracy, completeness,or timeliness provided thereto by unaffiliated third parties. Moreover, the provision ofcertain data/information in this publication is subject to the terms and conditions of otheragreements to which Emirates NBD is a party. Anyone proposing to rely on or use theinformation contained in this publication should independently verify and check theaccuracy, completeness, reliability and suitability of the information and should obtainindependent and specific advice from appropriate professionals or experts. Further,references to any financial instrument or investment product are not intended to implythat an actual trading market exists for such instrument or product. The information andopinions contained in Emirates NBD publications are provided for personal use andinformational purposes only and are subject to change without notice. The material andinformation found in this publication are for general circulation only and have not beenprepared with any regard to the objectives, financial situation and particular needs of anyspecific person, wherever situated.

ConfidentialityThis publication is provided to you upon request on a confidential basis for informationalpurposes only and is not intended for trading purposes or to be passed on or disclosedto any other person and/or to any jurisdiction that would render the distribution illegal.The investor may not offer any part of this publication for sale or distribute it over anymedium including but not limited to over-the-air television or radio broadcast, a computernetwork or hyperlink framing on the internet without the prior written consent of EmiratesNBD or construct a database of any kind.

SolicitationNone of the content in this publication constitutes a solicitation, offer, opinion, orrecommendation by Emirates NBD to buy or sell any security, or to provide legal, tax,accounting, or investment advice or services regarding the profitability or suitability of anysecurity or investment and further does not provide any fiduciary or financial advice.

Third partyThe security or investment described in this publication may not be eligible for sale orsubscription to certain categories of investors. This publication is not intended for use by,or distribution to, any person or entity in any jurisdiction or country where such use ordistribution would be contrary to law or regulation. It is the responsibility of any person inpossession of this publication to investigate and observe all applicable laws andregulations of the relevant jurisdiction. This publication may not be conveyed to or usedby a third party without the express consent of Emirates NBD. The investor may not usethe data in this publication in any way to improve the quality of any data sold or contributedto by the investor to any third party.

LiabilityAnything to the contrary herein set forth notwithstanding, Emirates NBD, its suppliers,agents, directors, officers, employees, representatives, successors, assigns, affiliates orsubsidiaries shall not, directly or indirectly, be liable, in any way, to you or any other personfor any: (a) inaccuracies or errors in or omissions from the this publication including, butnot limited to, quotes and financial data; or (b) loss or damage arising from the use of thispublication, including, but not limited to any investment decision occasioned thereby. Underno circumstances, including but not limited to negligence, shall Emirates NBD, its suppliers,agents, directors, officers, employees, representatives, successors, assigns, affiliates orsubsidiaries be liable to you for direct, indirect, incidental, consequential, special, punitive,or exemplary damages even if Emirates NBD has been advised specifically of thepossibility of such damages, arising from the use of this publication, including but notlimited to, loss of revenue, opportunity, or anticipated profits or lost business.

This publication does not provide individually tailored investment advice and is preparedwithout regard to the individual financial circumstances and objectives of person whoreceive it. The appropriateness of an investment activity or strategy will depend on theperson’s individual circumstances and objectives and these activities may not be suitablefor all persons. In addition, before entering into any transaction, the risks should be fullyunderstood and a determination made as to whether a transaction is appropriate giventhe person’s investment objectives, financial and operational resources, experiences andother relevant circumstances. The obligations relating to a particular transaction (andcontractual relationship) including, without limitation, the nature and extent of theirexposure to risk should be known as well as any regulatory requirements and restrictionsapplicable thereto.

Forward lookingPast performance is not necessarily a guide to future performance and should not beseen as an indication of future performance of any investment activity. The informationcontained in this publication does not purport to contain all matters relevant to anyparticular investment or financial instrument and all statements as to future matters arenot guaranteed to be accurate. Certain matters in this publication about the futureperformance of Emirates NBD or members of its group (the Group), including withoutlimitation, future revenues, earnings, strategies, prospects and all other statements thatare not purely historical, constitute “forward-looking statements”. Such forward-lookingstatements are based on current expectations or beliefs, as well as assumptions aboutfuture events, made from information currently available. Forward-looking statements

often use words such as “anticipate”, “target”, “expect”, “estimate”, “intend”, “plan”, “goal”,“seek”, “believe”, “will”, “may”, “should”, “would”, “could” or other words of similar meaning.Undue reliance should not be placed on any such statements in making an investmentdecision, as forward-looking statements, by their nature, are subject to known andunknown risks and uncertainties that could cause actual results, as well as the Group’splans and objectives, to differ materially from those expressed or implied in the forward-looking statements. Estimates of future performance are based on assumptions that maynot be realized.

RiskData included in this publication may rely on models that do not reflect or take into accountall potentially significant factors such as market risk, liquidity risk, and credit risk. EmiratesNBD may use different models, make valuation adjustments, or use differentmethodologies when determining prices at which Emirates NBD is willing to trade financialinstruments and/or when valuing its own inventory positions for its books and records.

The use of this publication is at the sole risk of the investor and this publication andanything contained herein, is provided "as is" and "as available." Emirates NBD makes nowarranty of any kind, express or implied, as to this publication, including, but not limitedto, merchantability, non-infringement, title, or fitness for a particular purpose or use.

Investment in financial instruments involves risks and returns may vary. The value of andincome from your investments may vary because of changes in interest rates, foreignexchange rates, prices and other factors and there is the possibility that you may lose theprinciple amount invested.. Before making an investment, investors should consult theiradvisers on the legal, regulatory, tax, business, investment, financial and accountingimplications of the investment.

In receiving this publication, the investor acknowledges it is fully aware that there are risksassociated with investment activities. Moreover, the responsibility to obtain and carefullyread and understand the content of documents relating to any investment activity describedin this publication and to seek separate, independent financial advice if required to assesswhether a particular investment activity described herein is suitable, lies exclusively withthe investor.

Intellectual propertyThis publication has been developed, compiled, prepared, revised, selected, and arrangedby Emirates NBD and others (including certain other information sources) through theapplication of methods and standards of judgment developed and applied through theexpenditure of substantial time, effort, and money and constitutes valuable intellectualproperty of Emirates NBD and such others.

All present and future rights in and to trade secrets, patents, copyrights, trademarks,service marks, know-how, and other proprietary rights of any type under the laws of anygovernmental authority, domestic or foreign, shall, as between the investor and EmiratesNBD, at all times be and remain the sole and exclusive property of Emirates NBD and/orother lawful parties. Except as specifically permitted in writing, the investor may not copyor make any use of the content of this publication or any portion thereof. Except asspecifically permitted in writing, the investor shall not use the intellectual property rightsconnected with this publication, or the names of any individual participant in, or contributorto, the content of this publication, or any variations or derivatives thereof, for any purpose.

This publication is intended solely for non-commercial use and benefit, and not for resaleor other transfer or disposition to, or use by or for the benefit of, any other person or entity.By accepting this publication, the investor agrees not to use, transfer, distribute, copy,reproduce, publish, display, modify, create, or dispose of any information contained in thispublication in any manner that could compete with the business interests of Emirates NBD.Furthermore, the investor may not use any of the trademarks, trade names, service marks,copyrights, or logos of Emirates NBD or its subsidiaries in any manner which creates theimpression that such items belong to or are associated with the investor or, except asotherwise provided with Emirates NBD, prior written consent. The investor has noownership rights in and to any of such items.

Emirates NBD is licensed and regulated by the UAE Central Bank.

United kingdomThis publication was prepared by Emirates NBD Bank PJSC in the United Arab Emirates.It has been issued and approved for distribution to clients by the London branch ofEmirates NBD Bank PJSC which is authorized by the Prudential Regulation Authority andregulated by the Financial Conduct Authority (FCA) and the Prudential Regulation Authorityin the UK. Some investments and services are not available to clients of the LondonBranch. Any services provided by Emirates NBD Bank PJSC outside the UK will not beregulated by the FCA and you will not receive all the protections afforded to retailcustomers under the FCA regime, such as the Financial Ombudsman Service and theFinancial Services Compensation Scheme. Changes in foreign exchange rates may affectany of the returns or income set out within this publication.

SingaporeThis publication was prepared by Emirates NBD Bank PJSC in the United Arab Emirates.It has been issued and approved for distribution to clients by the Singapore branch ofEmirates NBD Bank PJSC which is licensed by the Monetary Authority of Singapore (MAS)and subject to applicable laws (including the Financial Advisers Act (FAA) and theSecurities and Futures Act (SFA). Any services provided by Emirates NBD Bank PJSCoutside Singapore will not be regulated by the MAS or subject to the provisions of the FAAand/or SFA, and you will not receive all the protections afforded to retail customers underthe FAA and/or SFA. Changes in foreign exchange rates may affect any of the returns orincome set out within this publication.

Please contact your Relationship Manager for further details or for clarification of thecontents, where appropriate.

For contact information, please visit www.emiratesnbd.com

WEALTH MANAGEMENT

EMIRATES NBD WEALTH MANAGEMENT

ABU DHABI – DUBAI – LONDON – MUMBAI – RIYADH – SINGAPORE

www.emiratesnbd.com

From the CIO Office “Big ships often sail on big debts” · EMIRATES NBD WEALTH MANAGEMENT...

Documents

Transcript of From the CIO Office “Big ships often sail on big debts” · EMIRATES NBD WEALTH MANAGEMENT...