“Overseas funds have increased their Chinese bonds holdings to a record high of 1.68 trillion yuan in August,” said Taran Khera, the head of Asia Pacific of Bloomberg LP on Sunday during an exclusive interview with China Fortune Media.
Bloomberg’s figureis based on data from the China Central Depository & Clearing Co. and the Shanghai Clearing House, Khera said
Bloomberg, the world’s leading financial data and information company, announced on March 23 that it would add Chinese bonds into the Bloomberg Barclays Global Aggregate Index starting from April 2019 pending several operational enhancements by the People’s Bank of China (PBOC), China’s central bank, and the Ministry of Finance (MOF).
The Bloomberg Barclays Global Aggregate Index is one of the top three bond indices as well as the most widely used fixed-income benchmark index in the world.
“China’s 12 trillion US dollars’ bond market is now the third largest in the world. As the market continues to grow, it could become bigger than the third largest, and global investors will be very focused on this.” Khera said.
Regarding the increasing interests from foreign investors in China’s bonds market, Khera said, “The global investors that we spoke to continued to ask questions about the Chinese market, and we’ve also seen a focus on promoting Chinese bonds abroad, for example, the China Asset Management (Hong Kong) Limited. China Asset Management, one of China's biggest fund companies, launched a new Exchange Traded Fund (ETF) that tracked the performance of China treasury and policy bank bonds in June. It is the first of its kind in Hong Kong.”
“China is a new market, that means foreign investors really need to build a deeper knowledge of China’s bonds market before they make investment decisions,” Khera warned foreign investors. “Therefore, they are also concerned about the government’s commitment to reforms.”
China is stepping up the pace of reforming its bonds market.
China launched Bond Connect in July 2017, which is convenient for foreign investments in China’s bonds market. Moreover, as of July 2018, over 1,000 overseas institutions are investing in the inter-banking bonds market, with a total value of 1.7 trillion yuan.
“Over the past few weeks, authorities have announced a wave of new rules to further open up China’s bonds market, including the implementation of a Delivery Versus Pay (DVP) scheme, and introducing block trading and a clarification on taxation, which are crucial to an index inclusion for global investors. The changes will make Chinese bonds more attractive to foreigners,” Khera said.
Where can China’s bonds market be further improved?
In Khera’s view, China could expand market access by connecting to more international electronic trading platforms where the international investor community is trading, enhancing the capabilities for market-making, developing a better infrastructure, increasing the market’s transparency and bringing in the globally acknowledged best practices on credit-rating, etc.
“Bloomberg has built an advanced and comprehensive set of product offerings for investors to invest in China’s bonds market, including the RMB Bond Suite, Kungfu Bond Suite, etc,” Khera said.
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