FOREIGN INVESTORS BOOST CHINESE BOND PURCHASES

Stable yuan, relatively high onshore rates help lure money home from overseas

FOREIGN investors increased their holdings of Chinese bonds for a fifth consecutive month last month, but official data showed little evidence that the country’s one-month-old scheme to ease bond market access for overseas investors has had a significant impact on trading.

Holdings of Chinese treasury bonds by overseas investors rose 37.82 billion yuan (RM23.9 billion) last month to 487 billion yuan, according to calculations based on data from China Central Depository and Clearing Co, the official bond clearing house.

Increases in holdings of Chinese treasury bonds and some corporate bonds offset a net decrease in holdings of policy bank bonds.

Data showed that foreign investors increased their holdings of all Chinese bonds by 37.8 billion yuan last month to 841.5 billion yuan.

For the first seven months of the year, foreign holdings of Chinese debt rose 62.6 billion yuan.

While the monthly increase in the holdings of all Chinese bonds was the highest since September last year, the numbers appear to reflect Chinese money lured home from overseas by a stable yuan and relatively high onshore rates, rather than significant new interest among foreign buyers prompted by the Bond Connect scheme.

Yields on benchmark 10-year Chinese government bonds were at 3.644 per cent yesterday, up 98 basis points from lows in October.

“In the early days, it was mainly the overseas firms of Chinese institutions that were coming in (through Bond Connect). Later there should be real overseas institutions. Overseas investors need time,” said David Qu, markets economist at ANZ in Shanghai.

Described by regulators as a significant step towards increasing cooperation between capital markets in mainland China and Hong Kong, the Bond Connect scheme began on July 3 with the opening of “Northbound” trade, allowing eligible Hong Kong and overseas institutions to buy and sell onshore bonds. Reuters