Foreign funds seen tripling Chinese bond holdings with Bond Connect tweaks, Asifma says
Foreigners held US$606 billion worth of Chinese bonds in May, or about 3 per cent of the local-currency debt market
Global investors could triple their current holdings of yuan-denominated bonds, aided by Beijing’s recent enhancements to the Bond Connect scheme that helped ease two-way capital flows, according to the Asia Securities Industry and Financial Markets Association (Asifma).
Their investments could reach about 10 per cent of the US$22 trillion market, according to Philippe Dirckx, managing director and head of fixed income at Asifma. They held 3 per cent or 4.35 trillion yuan (US$606 billion) of the market in May, according to official data, five times the level when Bond Connect was launched in 2017.
“The growth potential is large,” Dirckx said in an interview, adding that the 10 per cent level was a “reasonable” guide based on global investors’ participation in other local-currency markets. “There is an opportunity for investors to take up Chinese assets in an environment where people are looking to diversify their exposure from the US dollar.”
He did not specify a time frame to reach the 10 per cent. China is the world’s second-largest bond market after the US.
The People’s Bank of China and the Hong Kong Monetary Authority on Tuesday agreed to expand the offshore yuan repurchase agreements, or repos, to support the repledging of repo collateral. Changes were also made to support the settlement of offshore yuan repos in other non-yuan currencies such as the US dollar, euro and Hong Kong dollar.