Rise of the Yuan: Foreigners increase China bond exposure

Data from Bondconnect shows foreigners bought $10.8 billion of govt and quasi-govt bonds in China in February

By UMESH DESAI

A large number of foreign investors are putting money into China and this time they are headed towards the bond markets, as global stock exchanges have been rocked by negative sentiment, while the Chinese central bank recently unleashed a wall of money to combat slowing growth.

China has been slowly opening its doors to foreigners and foreign ownership in bond markets has lept over the past two years as different avenues of exposure have emerged – the Qualified Foreign Institutional Investor (QFII) and RMB QFII (RQFII) schemes, plus direct investment in China’s interbank bond market (CIBM Direct) and Bond Connect.

Last year, China’s onshore bond market overtook Japan to become the second-largest in the world in terms of bonds outstanding, behind the United States. Yet foreigners’ holdings are still tiny – less than 5% – when compared with developed markets such as Japan (12.1%) and the US (28%), as well as such emerging markets like Indonesia (39%) and Malaysia (24%).

That is starting to change.

Data from Bondconnect showed foreigners bought 75.5 billion yuan off China’s government and quasi-government bonds in February using the various channels that have been made available. This is five times the amount they bought in the previous month……..more here

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