When it comes to investing, there are several options to choose from. Among the most popular are trading stocks or buying corporate bonds. In Hong Kong, there are many ways to purchase these bonds, depending on your needs and preferences.
However, Hong Kong is a bit of a Wild West regarding corporate bonds. With no formal regulatory framework for these products, companies have a lot of flexibility in issuing different types of bonds. This can be both good and bad – on the one hand, it means that companies can give whatever kind of bond they want, but on the other hand, it can make it difficult for investors to understand what they’re buying.
How to buy corporate bonds in HK
There are three ways in which new investors can buy corporate bonds in Hong Kong:
1. Find a reputable broker
The easiest way to buy corporate bonds is through a broker. Brokers can offer various services, including helping you find the proper sealant, negotiating the best deal for you, and helping you manage your portfolio. They may also have access to products not available to the general public. However, their fees can be high, and they may not have the same level of expertise as an institutional investor or mutual fund.
2. Go through your bank
If you want to invest in corporate bonds but don’t want to go through a broker, you can purchase them through a bank. However, banks usually only offer bonds from well-known companies and don’t have much variety as brokers. They also typically have lower redemption thresholds, meaning you can’t redeem your investment as quickly.
3. Buy mutual funds
Another option is to invest in corporate bonds through a mutual fund. Mutual funds pool money from several investors and buy a range of assets, including corporate bonds. This can be a good option if you’re not sure which company you want to invest in or if you’re going to spread your risk across several different companies. However, mutual funds often have high fees, which may not be available in all countries.
Types of corporate bonds
When buying corporate bonds in Hong Kong, it is essential to consider the risk involved and the potential returns. By considering these factors, you can ensure that you decide which type of bond is right for you. There are several different types of corporate bonds in Hong Kong.
1. Traditional corporate bonds
These are the most common type of corporate bonds. They work just like you would expect – the issuer borrows money from investors in exchange for a set number of regular interest payments (coupons) until the bond matures.
2. Convertible bonds
Convertible bonds give investors a choice between receiving interest or “converting” their bonds into shares in the company that issued them.
3. Zero-coupon bonds
As the name suggests, zero-coupon bonds don’t have any coupon payments, which means that investors don’t receive any interest or dividend income from these types of bonds.
4. Floating-rate notes
FRNs provide interest payments that fluctuate with market conditions, such as changes in short-term interest rates, and they offer a higher yield than traditional government bonds while still being backed by high-quality assets. These bonds are created when a company pools together several debt obligations and sells them as securities.
5. Asset-backed securities
ABSs are another popular corporate bond product because they offer a higher yield than traditional government bonds while still being backed by high-quality assets. These bonds are created when a company pools together several debt obligations and sells them as securities. The cash flows from the underlying debt obligations are used to repay the investors who bought the ABSs.
Finally
If you’re interested in corporate bond trading, it’s essential to research and find the best option for you. Talk to a broker, bank, or mutual fund about their products and services, and make sure you understand the risks and benefits involved in each investment. We recommend using a reputable online broker from Saxo Bank and trying out a demo account before investing your own money.
