Bond Connect will help Hong Kong develop its own fixed income and derivatives market

HKEX chief executive Charles Li Xiaojiao admitted on Thursday that Hong Kong is not traditionally known as a fixed income market, nor a sovereign debt issuer.

But he insisted it will be working hard in the months and years ahead to ensure a competitive number of fixed income and derivatives offerings will be available in the city, after the creation of its Bond Connect trading link with China, bringing the nation another step further to internationalising the yuan and boosting the chances of being included in global bond indices.

Under Bond Connect, overseas investors will be able to invest onshore through Hong Kong trading infrastructure, making China’s market much more accessible to offshore parties, including institutional investors.

“We need to transform ourselves from being just a cash and equity single trick pony,” he told a briefing on Thursday in Hong Kong.

“Hong Kong wants develop its own fixed income and derivatives market to become a truly global financial centre. There are hundreds of equity markets in the world, but only a handful of derivatives, interest rate and credit markets,” Li said.

Connect is designed to use Hong Kong’s settlement facilities to act as the “nominee bond holder” on behalf of offshore investors, allowing them to continue to use offshore global custodians rather than needing to open onshore settlement accounts under the previous China interbank market direct access scheme.