Chinese bonds still popular with foreign investors

Chinese bonds continue to be popular among foreign investors, with the bond trusteeship volume by the overseas institutions at China Central Depository & Clearing reaching 3.26 trillion yuan ($510 billion) as of May, up 1.28 percent from last month, Securities Daily reported on Tuesday.

Foreign investors have increased their holdings of Chinese bonds for five consecutive months, with the holdings increasing by 171.93 billion yuan in January, 95.69 billion yuan in February, 4.62 billion yuan in March, 64.86 billion yuan in April and 41.32 billion yuan in May, Securities Daily said. The total holdings increased by 378.42 billion yuan in the first five months.

Yukai Securities' chief market analyst Li Xing was quoted in the press as saying that three reasons result in foreign investors preferring Chinese bonds, including:

China's economic fundamentals are relatively strong, as the nation is taking the lead in economy recovery as the pandemic continues to spread abroad.

FTSE Russell, a global multiasset index provider, confirmed in March that Chinese government bonds will be included in the FTSE World Government Bond Index (WGBI) at the end of October, with the bounds bonds comprising 5.25 percent of the WGBI on a market value-weighted basis when fully included.

The Chinese bond market expects to attract over 100 billion yuan after the Chinese government bonds are included in the FTSE WGBI, Li Xing said.

Moreover, China is the world's second-largest bond market. The country's government bonds have a certain interest rate advantage over other countries' bonds, and the low correlation between Chinese bonds and the international bond markets is also conducive to investment risk diversification.

According to the Central Bank's Shanghai headquarters, foreign investors hold Chinese bonds worth 3.68 trillion yuan in the interbank bond market as of May, accounting for 3.5 percent of the total trusteeship volume, with the national debt at 2.12 trillion yuan, accounting for 57.7 percent, and the policy-based financial debt at 1.02 trillion yuan, accounting for 27.7 percent.

In May, nine new overseas institutions entered the Chinese mainland's interbank bond market, and total number of the overseas institutions in the market reached 947.

Currently, the international investors' holdings in Chinese bonds are at a low level, with the holdings volume accounting for 3 percent of the total, and as the three major global bond indexes include the Chinese bonds, more foreign capital will flow into China's bond market in the future, said Li Xing.

Li predicted that the foreign investment in Chinese bonds is expected to exceed 50 billion yuan in June.

The regulatory authorities have introduced a series of measures to improve the system of Chinese bond market in recent years, and as the bond market has been further opened up, the foreign investors enjoy more convenience, said Securities Daily.

Accelerating opening-up of the Chinese bond market, which conforms to the trend of renminbi internationalization and interest rate marketization, is also conducive to enhancing the international status of China's bond market, Li said.