New China bond index designed to help investors avoid trouble spots

PUBLISHED : Tuesday, 29 March, 2016, 6:19pm
UPDATED : Tuesday, 29 March, 2016, 6:28pm

The rising number of corporate defaults in China’s burgeoning bond market has prompted the clearing house and one of the country’s largest asset managers to sift out high-risk debt issuers to ensure safety of investments.

China Central Depository & Clearing has teamed up with Ping An Asset Management, a subsidiary of Ping An Insurance, to launch a new index to help bond investors minimise risks in the 14 trillion yuan (HK$16.69 trillion) corporate debt market grappling with a wave of repayment failures amid an economic slowdown.

Liu Fan, chief business officer of the clearing house, said the index which tracks corporate bonds with triple-A ratings would mark a milestone in China’s efforts to develop the bond market on par with international practises.

Ping An Asset Management would select constituents from high-quality bonds with triple-A ratings before the clearing house compiles the index.

Institutional and individual investors can allocate their assets into bonds according to their weight in the index.

“There are always risks in bond investment,” said Liu. “What we need to do is to distinguish the risks and price the risks.”

The clearing house said the index was the first of its kind since it enlisted the help of a buyer, rather than relying on only its own research team, to compile a bond indicator.

Other indicators that track lower rated, high-yield corporate debts will also be jointly launched by the clearing house and powerful institutions to help traders better gauge risk.

Wan Fang, chairman of Ping An Asset Management, said yesterday that the corporate bond market in China was facing stern challenges due to increasing risk and a decline of confidence in economic and company fundamentals.

More than a dozen corporate bonds have defaulted recently. The failures sent a shock wave through the mainland bond market. In the past decade, corporate bonds could only be approved by regulators if they received high credit ratings by rating agencies. China’s economy grew 6.9 per cent in 2015, the slowest pace in 25 years.

Beijing plans to fast-track the development of the domestic bond market to facilitate companies fundraising and reinforce the drive towards making the yuan an international currency. But the recent defaults and scandals that involved dozens of unethical company executives and corrupt government officials in bond issuance and trading have tarnished the reputation of the country’s debt market.

Ping An Asset Management managing director Gu Wei said tracking a well-compiled bond index could investors avoid risks.