Dim Sum bonds brace for impact as Beijing opens onshore bond market to global investors

Beijing’s opening up of the mainland onshore bond market for foreign investors is set to seriously hit the already weak dim sum bond market.

The People’s Bank of China last week announced it would allow foreign investors to invest in its onshore inter bond market which has been seen as a major liberalisation of the mainland market.

These investors are to include banks, insurers, securities firms, asset managers, pension funds and charitable funds without quota restrictions. The details on how it would work, such as the minimum holding period, are still to be announced.

At present, only investment firms that have the Qualified Foreign Institutional Investors (QFII) quota are allowed to invest in the onshore bond market. Retail or institutional investors who do not have a quota are left with few alternatives apart from the dim sum bond market, which are yuan bonds issued in Hong Kong and other markets.

“We think it may be a challenging period for the growth of dim sum bonds if investors get easy access to onshore China bonds,” said Binay Chandgothia, portfolio manager for multi-asset advisors of investment firm Principal Global Investors.

He said the move is a natural extension of China’s capital market liberalisation plans after the yuan, also called as renminbi, will be added into the International Monetary Fund’s Special Drawing Right basket from October this year alongside with US dollar, euro, yen and pound.