(Yicai) April 15 -- The US’ BlackRock and other international asset management firms are shifting their focus in China to safer options such as secondary, or mixed, bond funds with fixed income assets to shield investors against the market volatility resulting from the US government’s new Reciprocal Tariffs.

BlackRock has recently issued a secondary bond fund that combines stocks and bonds, thereby offering a more stable return, Yicai learned.

‘Secondary bond funds’ go one step further than ‘primary bond funds’ and engage in stock trading as well as buying bonds with high credit ratings, such as treasury and corporate bonds, as well as newly issued stocks on the primary market. They are regarded as low-to-medium-risk investments with a greater potential for both reward and risk than primary bond funds.

Bonds can help keep a portfolio steady, said Wang Xiaojing, head of quantitative and multi-asset investment at New York-based BlackRock’s China arm.

The supply of government bonds is likely to continue to increase this year, which could cause their yields to fluctuate within a certain range, Wang said. Right now, overseas demand is under pressure, so cutting banks’ reserve requirement ratio is a better course of action than trimming interest rates, due to the restrictions on such cuts.

Wang said he is not pessimistic about China’s stock market and believes that additional returns can be generated through strategies that take advantage of sector rotations. Large-cap stocks will likely do better, thanks to government policy support, he added.

China’s 10-year government bond yield dropped to 1.655 percent at the end of last week, and the 30-year one to 1.858 percent, both much lower than the mid-March highs of 1.9 percent and 2.14 percent, respectively. Bond yields are inversely proportionate to their prices. This shows that worries over tariffs are pushing investors into the bond market.

Before and after the upcoming five-day May Day holiday could be a key time for new policies to be announced, Wang said. There is still a chance that the government will cut the reserve requirement ratio later this month. Fiscal policies need to be effective and cover multiple industries.

Even with the current uncertainty, investment firms are still looking for gains in the stock market, Wang said. In the long run, if interest rates keep dropping and liquidity stays loose, both stocks and bonds could enter a new medium-term bull market. But in the short term, the global situation is complex and markets are likely to stay volatile, so holding only stocks or only bonds is unlikely to keep a portfolio stable.

Editor: Kim Taylor