Caixin
Dec 17, 2019 08:37 PM
DAILY CHART

Chart of the Day: Overseas Investors’ Growing Appetite for Chinese Government Bonds

Overseas investors are buying more Chinese bonds than ever before, and increasingly prefer central government bonds to corporate bonds.

The total value of Chinese onshore bonds held by overseas institutional investors reached 2.2 trillion yuan ($313.6 billion) at the end of November, growing 33.5% year-on-year, according to Caixin calculations based on data from state-owned financial infrastructure providers China Central Depository & Clearing Co. Ltd. (CCDC) and Shanghai Clearing House. Overseas investors include those outside the Chinese mainland in Hong Kong, Macao and Taiwan.

COTD chart

The Chinese bond market, as the world’s second-biggest, is “too big to ignore,” said a blue book issued last week by Fitch Ratings Inc., as several global bond indexes have included Chinese central government bonds.

Overseas institutional investors held 1.3 trillion yuan of Chinese central government debt as of end-November, up 21.5% year-on-year, but just 13.98 billion yuan of corporate bonds, about the same as last end-November’s 13.96 billion yuan, according to data from CCDC. CCDC provides depositary services for the lion’s share of Chinese bonds held by such investors.

In addition to central government bonds, overseas investors are increasingly interested in quasi-government bonds, buying more bonds issued by policy banks and other government-backed institutions than last year.

Analysts from multiple research institutions attribute the trend to Chinese sovereign bonds’ relatively high yields compared with those in some developed countries.

A 2020 forecast issued by JP Morgan Asset Management Inc. said fixed-income asset yields would be sluggish next year as monetary policies around the world will be very eased.

But Sylvia Sheng, a strategist at the company, said in a briefing in Shanghai last month that Chinese bonds have two advantages. One is that some Chinese central government bonds still provide yields above 3%, in contrast with many European countries who have set negative interest rates for national debt. The other is that the correlation between Chinese bonds and bonds in other major economies has always been very low, which can help investors diversify their portfolios.

Overseas investors’ interest in Chinese corporate bonds remains limited, likely due to concerns over default and currency risks, Fitch said in the blue book.

“Relatively weak public disclosure, corporate governance weaknesses, and a post-default legal framework which is still immature remain hurdles for foreign investors to boost their credit exposure significantly,” it said.

Zhang Lijun contributed to this report.

Contact reporter Guo Yingzhe (yingzheguo@caixin.com)

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