China’s effort to liberalize its bond market are expected to open opportunities for global investors.
The onshore market could see foreign ownership doubling from a current level of less than 2%.
China’s recent effort to liberalise its bond market is expected to bring about $250 billion inflows into China’s onshore bond market, according to BlackRock.
Last month, Bloomberg, the sponsor of one of the top three yardsticks for global bond performance, announced a plan to phase in CNY denominated government and policy bank securities into the Bloomberg Global Aggregate Index.
The move, scheduled to start a year from now and end after 20 months, would bring China to 5.49% of the Bloomberg index.
The timetable for inclusion is subject to China implementing certain enhancements in delivery and settlement, and more technical issues, such as refinements on block-trade allocation.
Andy Seaman, partner and chief investment officer at Stratton Street, said China’s foreign ownership of its onshore bond market is pale in comparison when compared with the US, where foreign ownership represents about 60% of its onshore bond market.
However, this is expected to change moving forward, given that more foreign investors are looking to diversify their investments in renminbi. In addition, most Chinese investors who are home-biased tend to hedge their international investments to renminbi.
This will buoy well for renminbi bond funds or funds that have CNY class.
Currently, Stratton Street offers the Next Gen Global fund and NFA Global bond fund to accredited investors in Singapore. In addition, Stratton Street also launched the Ucits version of its Renminbi Bond fund in 2013.
Both the Next Gen Global fund and NFA Global bond fund have the ability to have CNH classes, Seaman said, adding that the company’s longer term plan is to have all these funds in CNH classes.
Among the renminbi bond funds that have been launched are Stratton Street Renminbi Bond fund, AllianceBernstein RMB Income Plus fund, Fullerton RMB fixed income fund, DWS Invest China Bonds fund, United Renminbi Bond fund, and HSBC RMB Bond fund, to name a few.