China bonds go global with Bloomberg Barclays index inclusion

RenminbiHundreds of Chinese yuan-denominated government and policy bank securities are being phased into the Bloomberg Barclays Global Aggregate Index over a 20-month period, which began on April 1, 2019. The move is a huge step in China’s chapter of opening up to foreign investors, with HSBC predicting up to $150 billion of foreign inflows into the nation’s $13 trillion-dollar bond market – the third largest in the world. Once completed, the index will include 363 Chinese securities, representing 6.03% of the $54.07 trillion index. At that point, the yuan will become the fourth-largest currency component. “Tracked by around $2.5 trillion of assets under management, it is one of the world’s most important bond indices,” David Liao, president and chief executive of HSBC China wrote on the bank’s website. “This change means that many asset managers and ordinary savers around the world are set to increase their exposure to a market that is still underrepresented in global investment portfolios,” he added. Owning just 2% of onshore domestic bonds, foreign investors are aware of the opportunities the latest milestone presents. “Global investors would have the opportunity to invest in the third-largest bond market in the world, get the portfolio diversification benefit, obtain relatively higher bond yield compared to other developed bond markets and exposure to Chinese yuan bond and currency returns,” said Kheng-Siang Ng, Asia Pacific head of fixed income at State Street Global Advisors. “The increasing foreign investor inflows should create a healthy mix of investor and trading flows as well as improved liquidity. We expect this to accelerate onshore bond market development to become more matured and sophisticated like other developed markets,” added Ng. The opening of China’s $12 trillion bond market “might be the most pivotal change to global capital markets” over the coming years, according to JP Morgan Asset Management (JPMAM), but investors must successfully navigate the headwinds. “The challenge and opportunity for investors will be extracting the best possible return for the lowest level of risk across onshore, offshore (dim sum) and dollar bond markets,” said Jason Pang, portfolio manager at JPMAM. “We believe the best alpha opportunities in China are in cross-border investment, meaning being active across CNY [Chinese yuan/onshore RMB], CNH [offshore RMB] and USD bond markets (hedged into RMB),” he added. ©2019 funds global asia

Sponsored Profiles

Sponsored feature: Asset allocators – How do you track your decisions?

Apr 06, 2020

Mark Barry, Head of Asset Allocation at Milestone Group, explores how a simple question can highlight opportunities to automate and streamline your asset allocation investment process.

Sponsored feature: How is DLT changing the global securities services landscape?

Oct 17, 2019

By Jeslyn Tan, global head of product management, securities services, at Deutsche Bank

Sponsored feature: A new base for fund distribution

Oct 16, 2019

To get the most value out of the digitisation of investment fund distribution, a blockchain-based infrastructure is fundamental. By Olivier Portenseigne, Managing Director and Chief Commercial Officer, Fundsquare.

Sponsored profile: Bridging the gap

Mar 11, 2019

Private equity is a core part of the business for Caceis’ Hong Kong office, which looks after clients in China and Europe. David Li, chief executive officer, explains why private equity enjoys strong client demand and how it is being used to fund China’s international infrastructure ambitions.

Executive Interviews

Executive interview: ‘China is the 800-pound gorilla’

Aug 04, 2020

Just over a year into his new role, Wai-Kwong Seck, chief executive officer at Eastspring Investments, discusses his business goals, the Covid-19 pandemic and China.

Executive interview: Understanding geographies

Apr 06, 2020

Margaret Harwood-Jones, co-head financing and securities services at Standard Chartered, shares her insights on platform standardisation, opportunities in Asia and regulatory change to encourage...


Hong Kong roundtable: A ‘fragile Goldilocks situation’

Apr 06, 2020

With the global economy at a crossroads, our panel of experts share their thoughts on the market conditions, geopolitical volatility and growth opportunities. Chaired by Romil Patel in Hong Kong.

Singapore roundtable: A horizon to hold long-term assets

Dec 12, 2019

Panellists discuss the geopolitical fractures concerning asset owners, Singapore as a hub for fintech start-ups and why it makes sense to raise capital from a Variable Capital Company (VCC). Chaired by Romil Patel in Singapore.