Bond, stock connect schemes seen as playing crucial role in curbing yuan volatility
Analysts now expect to see a cut in its trade surplus as the economy becomes more consumption driven, meaning a rise in foreign goods being bought by Chinese, while domestic investors will invariably look more abroad to diversify their own portfolios
Incoming foreign funds into domestic Chinese equities and bonds will reduce global volatility and offset the currency depreciation pressure now emanating from the US-Sino trade tensions, say analysts.
They also predict the trade surplus will be cut further as the economy becomes more consumption driven, meaning a rise in foreign goods being bought by Chinese, while investors in the country will invariably look more abroad to diversify their own portfolios.
“The opening up of its capital markets to attract foreign investment through the Stock and Bond Connect Initiatives has been very important to China,” said CG Lai, head of global markets, Greater China at BNP Paribas.
Bond Connect was launched on July 3 last year as a mutual market access scheme that allows investors from mainland China and overseas to trade in each other’s respective bond markets.
It has achieved daily average trading volumes of some 3 billion yuan (US$454.36 million), with the value of foreign investor holdings in yuan bonds now standing at around about 130 billion yuan.