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China’s onshore bond market, valued at over USD 25 trillion, is the second largest globally, yet remains significantly under-owned by foreign investors, with foreign ownership stood at below 3%. This is notably lower than the 10% weight of the China subindex in the J.P. Morgan Government Bond Index-Emerging Markets Global Diversified (GBI-EM GD). This market offers significant room for global participation. It has already been included in the JP Morgan, FTSE Russell, and Bloomberg global government bond indices since 2019 because of the scale and full accessibility. The market comprises several major sectors:

• Chinese Government Bonds (CGBs): The most liquid and benchmarked instruments.
• Policy Bank Bonds (PBBs): issued by quasi-sovereign entities i.e. China Development Bank, Export-Import Bank of China and Agricultural Development Bank of China.
• Local Government Bonds (LGBs): Issued by provincial and municipal governments.
• Agencies: China Railway and Central Huijin.
• Corporate Credits: central/local SOEs (state-owned enterprises) and POEs (private-owned enterprises).

Within the CNY-denominated fixed income market, CGBs and PBBs dominate the widely used Bloomberg China Aggregate Index, with both accounting for >65% of the index weighting. Although the CGBs and PBBs are dominating the CNY bond market, there are significant alpha generation opportunities in credit selection and sector allocation outside of these two categories. Sectors such as SOEs and offshore CNH/USD bonds provide notable yield pickup over CGB and Policy Banks.

Source: Wind, �۶���Ƶ Asset Management. Data as of end June 2025

A “pure-play” & actively managed strategy with prudence

100% IG strategy with pure exposure to high-quality Chinese government and government-related bonds.

• Yield to maturity: 1.92% vs benchmark 1.70% in CNY
• Duration: 6.28yr vs benchmark 5.90yr
• Average credit rating: A

The shown yield-to-maturity is calculated as of end June 2025 and does not take into account costs, changes in the portfolio, market fluctuations and potential defaults. The yield to maturity is an indication only and is subject to change.

Source: �۶���Ƶ Asset Management. Data as of end June 2025.

Actively managed across duration, sector, and issuer selection. It maintains a core allocation to high-quality CGBs and policy bank bonds, while selectively investing in agencies and central SOEs for yield enhancement. The strategy is benchmarked against the Bloomberg China Aggregate whole market Index but is not constrained by it, allowing for tactical flexibility and active return generation.

Prudent credit selection to capture credit alpha opportunities with zero default history in the fund, supported by an experienced team of portfolio managers and credit analysts.

Value added through tactical allocation between onshore CNY bonds and offshore CNH & USD bonds based on relative value changes, leveraging the team’s over 20 years’ experience in both China onshore fixed income and offshore Asian credit market. The recent relaxation of Southbound Bond Connect has enabled onshore non-bank financial institutions (i.e. asset managers, insurance companies and securities firms) to access the CNH market through Southbound Bond Connect, leading to a strong demand of CNH bonds. There is also notable yield pick-up for CNH bonds vs CNY bonds for the same issue with similar tenor. Hedging Chinese issuers’ USD bonds to CNH could create yield enhancement from time to time. The Bloomberg USD China Non-Financials Single A 3-year yield shows yield differentials ranging from -150 to +300 bps by hedging offshore USD bonds into CNH, presenting periodic opportunities for active allocation.