Big US fund ready to nibble on Chinese bonds

China’s 2017 move to allow investments via the Hong Kong Bond Connect have made it easier for foreign investors to access the market, though logistics remain an issue for some, and a relative lack of hedging tools is also a concern.

Still, Goldman’s Kenneth Ho in December anticipated some $1 trillion in foreign inflows through the end of 2022. That would bring overseas ownership to about 6 per cent of the total outstanding, from little more than 2 per cent today, Ho wrote in a report.

For his part, Murphy in his global portfolio will be looking to pare back on risk during what may be a six to nine-month window of stability before what he sees as a likely resumption of Fed rate hikes. contrast to tightening by the US Federal Reserve. Foreign investors tend to prefer government and so-called policybank securities, issued by key state-owned lenders. Credit is more exposed to accountingtransparency issues, along with a record pace of defaults.

Murphy spoke days after Bloomberg LP said Chinese local-currency bonds will be added to the Bloomberg Barclays Global Aggregate Index on a phased basis from April. Market participants anticipate other key index providers will also incorporate Chinese debt in time.

Chinese bonds have much less liquidity than major peers, something that’s given some investors pause. Goldman Sachs Group Inc. estimates that turnover for government bonds was 1.3 times in 2018, after annualising January through September data. Treasuries turned over 4.6 times, while South Korean bonds came in at 3.4 times, Goldman analysts tallied.