For­eign in­vestors ready to con­nect with Chi­nese bonds

China Daily (Hong Kong) - - BUSINESS - By MENG FANBIN meng­fan­bin@chi­nadaily.com.cn

Global in­vestors are ex­pected to in­vest more in Chi­nese bonds through the main­landHong Kong con­nect on the back of the sta­ble ren­minbi ex­change rate and the coun­try’s fast-grow­ing econ­omy, ex­perts said.

The bond con­nect plat­form opened last month.

“Higher over­all yield, com­par­a­tively health­ier fun­da­men­tals and fast-grow­ing econ­omy at­tract for­eign cap­i­tal to China,” said Chen Ji­ahe, chief strat­egy an­a­lyst of Cinda Se­cu­ri­ties.

The yield on China’s 10-year trea­sury bond is now about 3.6 per­cent, while it is 0.08 per­cent on the Ja­panese trea­sury bond and 2.25 per­cent in the United States’.

China’s econ­omy con­tin­ued steady ex­pan­sion in the first half of this year with GDP up 6.9 per­cent, sup­port­ing the Chi­nese cur­rency.

Since late May, the ex­change rate be­tween ren­minbi and the dol­lar has risen nearly 2.5 per­cent, with for­eign ex­change re­serves ris­ing for five con­sec­u­tive months, which sig­nif­i­cantly eased the cap­i­tal out­flow and ren­minbi de­pre­ci­a­tion ex­pec­ta­tions.

Sta­tis­tics from China Cen­tral De­pos­i­tory & Clear­ing Co Ltd show that for­eign in­sti­tu­tional in­vestors in­creased their hold­ings to 37.8 bil­lion ($5.7 bil­lion) worth of yuan bonds in the Chi­nese main­land, the largest amount since Oc­to­ber last year, show­ing that FIIs have height­ened in­ter­est in en­ter­ing the main­land bond mar­ket.

By the end of July, the to­tal amount of bonds bought by FIIs hit a record 822.94 bil­lion yuan, up 4 per­cent month-on­month, the high­est monthly in­crease since Septem­ber last year, ac­cord­ing to data from CCDC, the cen­tral se­cu­ri­ties de­pos­i­tory.

Last month, FIIs gained in­creased ac­cess to the Chi­nese main­land’s $10 tril­lion bond mar­ket. The bond con­nect plat­form al­lows qual­i­fied over­seas in­vestors to trade bonds on the main­land in­ter­bank bond mar­ket, in­clud­ing trea­sury bonds, lo­cal govern­ment bonds, pol­icy bank bonds and com­mer­cial bank bonds.

The plat­form’s easy ac­cess to the main­land’s bond mar­ket and its ac­cor­dance with for­eign trad­ing habits drew in for­eign in­vestors, Bloomberg quoted Zeng Jie, an of­fi­cial from China Mer­chants Bank, as say­ing.

yield on China’s 10-year bond at present

Bond con­nect will help di­ver­sify in­vestors, en­liven the mar­ket and en­rich the par­tic­i­pants’ struc­ture, said Zeng, adding that the pro­por­tion of for­eign in­sti­tu­tional in­vest­ment in main­land’s bonds will in­crease grad­u­ally.

Sta­tis­tics show that shortterm and su­per short-term fi­nanc­ing vouch­ers had at­tracted over­seas cap­i­tal in July. That is be­cause cur­rency ex­change rate risk will not be high in the short term, given the steady Chi­nese cur­rency, Shang­hai Se­cu­ri­ties News quoted a se­nior of­fi­cial from rat­ings agency Moody’s as say­ing.

How­ever, as a whole, govern­ment bonds and debt from the China De­vel­op­ment Bank are still the ma­jor type of ren­minbi bonds held by over­seas in­vestors.

In Chen’s opin­ion, an­other rea­son why FIIs are flock­ing to the Chi­nese bond mar­ket is that they find it easy to make money from China’s im­ma­ture mar­ket fac­ing a rel­a­tively low level of Chi­nese in­vestors.

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