Insight Investment first overseas financial institution to access China interbank bond market

HSBC to act as settlement agent bank and custodian

PUBLISHED : Tuesday, 14 June, 2016, 8:26pm
UPDATED : Tuesday, 14 June, 2016, 8:46pm

Mainland China has opened up its capital market further by allowing the first foreign firm to access its interbank bond market on Tuesday under new arrangements. This marks the beginning of a long-awaited major reform plan to boost the internationalisation of the yuan and to attract foreign fund inflow.

Insight Investment, a UK investment management company, has become the first overseas financial institution to access China’s interbank bond market.

China’s bond market is worth approximately 48 trillion yuan (HK$56.58 trillion), and is the world’s third largest.

However, foreign ownership currently accounts for less than 3 per cent of onshore RMB-denominated bonds.

HSBC has enabled Insight’s registration with China’s regulators to invest in the market and will act as a settlement agent bank and custodian for the company.

As of 31 March this year, Insight had £440 billion (HK$4.85 trillion) of assets under management.

The People’s Bank of China officially announced the full opening up of the interbank bond market to offshore institutional investors in February with detailed rules governing how this might take place were released on May 27.

Before that, the mainland interbank market was tightly closed from the outside world with the exception of only those who have a quota under the Qualified Foreigner Institutional Investors scheme.

“The continuous opening up of China’s domestic bond market to foreign investors underpins the country’s determination to push forward its financial reform,” said Cian Burke, HSBC’s global head of securities services.

“The broader access and simplified process make it easier for overseas investors to tap into growth opportunities of China’s onshore bond market.”
Lai Chang Geng , head of Greater China, global markets at BNP Paribas.

“The broader access and simplified process make it easier for overseas investors to tap into growth opportunities of China’s bond market.”

Lai Chang Geng , head of Greater China, global markets at BNP Paribas, said in the first stage of opening up, foreign central banks were the key investors.

“Then came the banks and insurance companies in Hong Kong, and now we are entering the third stage — opening the onshore bond market to all real-money investors globally.

“This means many will use RMB bonds as part of ALM [asset and liability management] book investments.”

A recent study by the Standard Chartered RMB Investor Forum found 31 per cent of investors would consider investing in China’s onshore bond market.

Its opening up to a wider variety of investors is being seen as a further step toward RMB internationalisation, as it allows a greater range of investors to hold RMB-denominated fixed income products.

In March, JP Morgan announced it had placed China’s onshore government bond market on review to be included in its emerging-market bond indices.

Should Chinese bonds be listed on major emerging market indices it will then be incumbent on a number of funds to invest in them.

As such this will require a wider variety of players to hold and use the renminbi.

JP Morgan said Tuesday the review process was still ongoing. But Reuters reported in May that the bank had said Chinese government bonds could receive at least US$155 billion of investment flows, should the relaxation of rules around foreign participation lead to their inclusion in various global indices.

HSBC was the first foreign bank to support participating banks investing in China’s interbank bond market under the People’s Bank of China Pilot Programme in 2010, and was the first custodian bank supporting a Qualified Foreign Institutional Investor into the interbank bond market in 2013.