DEFINITION: Dim Sum Bonds
Dim Sum bonds allow foreign investors to invest in the Chinese economy, which does not allow their debt to be directly held by foreigners. Issued in Hong Kong and focused mainly on Chinese and Hong Kong debt, with the occasional foreign company.
Dim Sum Bonds – The Details
These bonds are in their infancy, allowing the shrewd investor to diversify and participate in the emerging growth of China. The bond had grown in popularity, particularly since 2010, when they were deregulated, becoming more widely available. Initially, the Dim Sum was introduced in 2007, but to a very limited audience and only via the Chinese development bank.
SCENARIO: American businessman wishing to invest in the growing economy of China. A trip is scheduled to China, and immediately you realize emotionally, you are in a foreign land. Taking local transport to your meeting with a Hong Kong banker, you see a modern edifice, towering into the blue sky. It is impressive, but there is a startling difference, the bottom floor is open to the elements, and there are the Chinese homeless living there. “Just like New York,” you mutter, but this is different, the bank owns the air rights, but the bottom floor is open to the public and home to the poorest of Hong Kong, while the elite tower above them. China, it is without a doubt across the world, seemingly, to the American eye, an alien environment.
Your meeting with the banker is emotionally charged, he greeted you with courtesy and honor, you feel this could be the beginning of great things, but they are not to be. The banker, a small, cautious man, almost apologetically tells you that it is impossible for an American to invest in China, “Yes, even Hong Kong,” he whispers. The trip, however, isn’t wasted, you’d performed your due diligence and realized that fact, knowing an invest in Dim Sum Bonds was the loophole.
Dim Sum Bonds – A Deeper Look
The Dim Sum Bond was given its name in honor of tradition, the tradition of family, friends, associates gathering around a meal and sharing. They would share traditional foods, fish, soups, rice, pork, dumplings and more. This is traditional and authentic Chinese food, not normally served in Chinese restaurants in other countries.
The bonds are, in a way, just like the meal, China is sharing a bit of their culture with the world, but it isn’t traded in Us dollar, rather actual Chinese Renminbi.
FACT: Mostly, the Dim Sum is sold in Hong Kong, but that has been changing with London – where Banco De Brasil is recently leading the expansion.
FACT: Dim Sum bonds are currently the only way for foreign investors to participate in the Chinese markets, currency and investments.
My visit with the friendly banker continued with a tour of the bank, a leisurely trip to the upper floors and breath taking a view of the city. During the entire tour, he smiled, apologizing more than once that he couldn’t accept me directly as a client, while nearly simultaneously touting the virtues of the Dim Sum, outlining the growth potential, 10-15%, and a 3-5 year maturity.
He went on to speak of the great need for increased construction and returns ranging from 7 to 18%. Impressive, but I’m cautious about the real estate market at the moment, feeling China is headed for a slowdown, particularly in that sector. I was however interested in the overall idea of the Dim Sum, realizing it could give many of my clients an excellent way to diversify while experiencing some impressive returns.
No Americans Beyond This Point
My banker excused himself, speaking of a private and important meeting he must attend, smiling again and thanking me for visiting, wishing me a very happy and healthy trip. I smiled, inwardly realizing how difficult China had made it for any foreign investor to participate, with a host of rules and regulations to adhere to. Most financial advisors would keep a wide berth, but I’m not most, and I feel the Dim Sum, approached with caution is a smart move for many.
The Dim Sum, like many alternative investments, isn’t for everyone. They are, however, a sign of a changing world, particularly the world of investing. As we move forward toward 2020, the world of finance almost insists that at least a portion of our portfolios be international.