What is a Dim Sum Bond?
Struggling developed western economies are making way for emerging economies of the east to establish newer avenues of investment. A highly popular tool for this purpose is Dim Sum Bonds. In the recent past when the dollar was highly volatile and the American economy had a heavy debt burden, Chinese currency was allowed to appreciate. A Dim Sum bond is issued by private Chinese companies and the government, denominated in the Chinese currency, Yuan. Most of the Dim Sum bonds are issued in Hong Kong.
Advantages and characteristics of Dim Sum Bonds
In highly volatile currency market, Yuan is relatively stable due to China’s control over the exchange rate. High growth of Chinese economy is the main factor behind the exceptional growth of the Dim Sum bond. The short term bond, usually having 1 to 3 years maturity, gives good returns. It forbids foreign investors from invest in the Yuan and to participate in Chinese corporate debt. Interest rates are also low; therefore, companies are investing in such bonds. In India, IDBI bank is the first bank to issue this bond.
Is there any limit for Indian companies or organisations to raise funds?
Yes, a certain limit is fixed. India has recently added Yuan to its list of foreign currencies apart from the euro, pound, dollar, and yen etc. Indian organisations can raise funds up to the limit of one billion dollars in Chinese currency. This can prove to be a golden opportunity for the Indian government and companies to raise substantial money.
What is the market size or status of the dim sum market?
In today’s scenario, it is one of the best markets to invest with little risk and higher return. It has risen remarkably to its peak from the years 2007 to 2011 and is only expected to increase further in 2012. The market had started with 10 billion Yuan and has already touched 100 billion Yuan and is further expected to have a turnover of 200-300 billion Yuan.
What is the secret behind the dim sum market?
The offshore Chinese renminbi (RMB) deposits and increasing trade in renminbi helps this market to flourish. As most of the money gets invested in the fast growing Chinese economy, it is expected that it will continue to grow in years to come. The number of affluent in the Asian country is also rapidly increasing.