China soldered – Newspaper Kommersant No. 196 (7397) of 10/21/2022

For the first time, a retail mutual fund appeared on the Russian market, investing in Chinese securities traded in Russia. This became possible due to the expansion of the number of securities traded on the SPB Exchange, as well as the active placement of bonds in yuan by Russian companies. Market participants note a growing interest in such assets, but also note the infrastructure risks of such investments.

Since October 20, the management company RB Capital has started the formation of an open-end investment fund RB-Capital Chinese Assets. As Oleg Galkin, CEO of the company, explained, the assets are planned to include “mainly shares of Chinese companies listed on the Hong Kong Stock Exchange and listed on the St. Petersburg Stock Exchange, as well as yuan bonds that are traded on the Moscow Stock Exchange.” This will be the first retail mutual fund focused on investments in Chinese assets traded on the Russian market. Previously, two funds were available to investors – Alfa Capital Chinese Shares and Gazprombank – Shares of Chinese Companies. However, they invested shareholders’ funds in two US ETFs, and after NSD’s account with Euroclear was blocked in March of this year, the assets of both funds were frozen.

According to market participants, exposure to China is relevant as a country and currency diversification.

“China is a rapidly growing economy, the current valuations of local companies’ shares are at low levels,” said Irina Krivosheeva, CEO of Alfa Capital Management Company. Management companies BCS and Alfa-Capital, within the framework of trust management, offer clients strategies focused on securities traded in Russia for yuan. Managed by Pervaya Management Company, there is a Hong Kong Hedge Fund available to qualified investors.

Interviewed market participants announced plans to launch similar retail funds. “With the expansion of the number of shares of Chinese companies traded on the SPB Exchange, it becomes possible to form a diversified portfolio for clients in the Russian Federation,” says Andrey Vereshchagin, Director of Sales Support and Client Experience at BCS Mir Investments. At the same time, funds of shares or a mixed type are considered, since the number of securities is not enough to create a bond fund. Otkritie Management Company has filed with the Central Bank for registration the rules of the currency fund, which will include bonds traded on the Moscow Exchange, denominated both in dollars and in yuan. As the number of yuan bond issues expands, the specialized fund plans to launch the First Management Company. “To create a fund, 10-15 issuers are required. Theoretically, it is possible to create a balanced fund, and in anticipation of new bond issues in yuan, part of the funds will be temporarily placed on short deposits,” says Dmitry Postolenko, head of the fixed income management department at Pervaya Management Company.

However, market participants pay attention to the infrastructure risks of such investments. “The depositary risk remains along the securities storage chain, since there is no information about the final depository where the securities are stored,” says Evgeny Gorbunov, head of the products department of Otkritie Management Company. The SPB Exchange did not disclose the chain of custody of Hong Kong shares, noting that the securities of 40 issuers are registered in the Cayman Islands, 13 in Hong Kong, four in China and one in Bermuda. “We plan to launch funds for Chinese stocks only when we are convinced that the chain of custody of securities will not carry significant risks for the client. To do this, we open our own depositary accounts in China. We plan to complete this process only in the second quarter of 2023,” said Artem Mayorov, director of the asset management department at Ingosstrakh Investments.

Vitaly Gaidaev, Ksenia Kulikova