China bonds on track despite delay

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Florence Lee, head of China sales and business development for the EMEA region, HSBC Securities

The recent decision by FTSE Russell not to include Chinese bonds in its World Government Bond Index and other benchmarks will not have a significant impact on the opening up of China’s domestic bond markets to international investors, FILS delegates were told yesterday.

Florence Lee, head of China sales and business development for the EMEA region at HSBC Securities, said that FTSE Russell’s decision to keep China on its watchlist would delay the inclusion process by perhaps only six or 12 months, suggesting the index provider wanted more time to consider the liquidity impact of recent reforms.

“Index inclusion is a key driver for any emerging market and China is no exception,” she said, noting the inclusion of Chinese bonds earlier this year in two other bond indices – the Bloomberg Barclays Global Aggregate bond index and JP Morgan’s Government Bond Index Emerging Markets suite. “It’s only a timing issue, we think,” she said, referring to the FTSE Russell decision.

In the meantime, she said, the opening up of China’s bond markets is continuing apace with international investors and local regulators adapting to each other step by step.

Lee said overseas investment institutions were increasingly making informed judgements on trading channels and calling for further market reforms and liberalisation, including wider access to China’s repo markets. Chinese regulators are continuing to listen to feedback, Lee said, citing examples of recent rule changes and tax incentives designed to reduce friction on inflows.

Asset managers mainly access China via BondConnect, which is quick to set up and does not require a mainland presence. At present, inflows are weighted 60:40 in favour of CIBM Direct, estimated Lee. “But I think this will eventually switch.”

©The DESK 2019

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