Managers welcome China government bonds index inclusion

Bonds newspaperGlobal fund managers have reacted positively to the decision of FTSE Russell to include Chinese government bonds in its World Government Bond index from October 2021.  FTSE Russell is the last of the three major index compilers to include Chinese debt and comes a year after it had rejected the Chinese government’s application citing the need for greater secondary market liquidity, increased market accessibility and more flexibility in the settlement of transactions. The index provider has since acknowledged reforms made by China in terms of increasing market accessibility and providing more currency trading options. The move is likely to bring more overseas inflows into the world’s second-biggest bond market, after the US. Goldman Sachs estimates inflows could surpass US$140 billion in the first 12 months. Chinese bonds are currently providing much higher yields than other international debt markets. For example, 10-year government bonds have a yield of 3.1% which is more than four times the yield of US government bonds. The inclusion has also been welcomed by global fund managers. According to Cecilia Chan, chief investment officer for fixed income, Asia Pacific at HSBC Global Asset Management, the decision is “further recognition of China’s efforts to advance its financial market reforms and provides irrefutable evidence of the mainstreaming of China onshore bonds”. Meanwhile Jason Pang, portfolio manager at JP Morgan Asset Management noted that the decision will see foreign ownership of Chinese bonds increase further, from the current 9% level. “It is increasingly clear that China bonds’ globalisation is simply a matter of time, further accelerated by increasingly accessible hedging options that enable investors to manage risk,” said Pang. “Over the past 20 years, China’s bond market has grown more than sixtyfold to nearly $14 trillion and has overtaken Japan as the second-largest in the world, we remain constructive on China bonds and the investment opportunities they offer.” © 2020 funds global Asia

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