The process of China’s opening of its financial markets could present attractive opportunities for Chinese and foreign investors. China has made efforts to align its domestic market practices with international standards and rising foreign investment inflows could help broaden and deepen China’s engagement with global markets. China is already deeply integrated into the global economy and trade and we think it is only a matter of time before China assumes a commensurate role in global financial markets. For international investors, especially those with highly developed and competitive home markets, we believe China’s onshore fixed income market provides an opportunity to achieve more attractive yields and greater diversification. As the number of index providers that include Chinese onshore bonds in their global indices rises, we think it is crucial for global investors to understand and evaluate this vibrant and expanding market.
The value of investments and any income will fluctuate (this may partly be the result of exchange rate fluctuations) and investors may not get back the full amount invested.
Yi Hu is Senior Analyst with Invesco Fixed Income.
^1 Source: Invesco Global Fixed Income Study 2019, as of March 2019.
^2 Source: SIFMA, Wind Financial Terminal Financial Terminal, JSDA, BIS, HSBC, Bloomberg L.P., Banque de France, Bundesbank, Invesco, as of Dec. 31, 2018.
^3 Source: Wind Financial Terminal, Invesco calculation, as of Dec. 31, 2018.
^4 Source: Bloomberg L.P. index announcement, “Details on the Upcoming China Inclusion to Bloomberg Barclays Indices”, Feb. 11, 2019.
^5 Source: Bloomberg L.P. index data, Jan. 31, 2019.
^6 The exchange market is one of two bond markets in China, the other being the interbank market. Listed companies can issue corporate bonds in the exchange market, which accounts for less than 10% of issuance and trading.
^7 Assuming an annual growth rate of 20% for the next three years, 10-20% ownership of central government and policy bank bonds leads to an estimated USD700 billion–USD1.5 trillion. Opinions are those of the author and are subject to change at any time due to change in market or economic conditions and may not necessarily come to pass.
^8 Source: Bloomberg index announcement, “Details on the Upcoming China Inclusion to Bloomberg Barclays Indices”, Feb. 2019. FTSE Russell Factsheet, March 31, 2019.
^9 Source: CEIC, Wind Financial Terminal, Invesco, as of Dec. 31, 2018.
^10 As illustrated in Fig. 7. Source: CEIC, CCDC, SCH, Invesco, as of April 30, 2019.
^11 As illustrated in Fig. 8. Source: Wind Financial Terminal, Bloomberg, Invesco, as of April 30, 2019
^12 Source: Citic Securities, as of April 29, 2019; China Interbank Bond Market Handbook by China Foreign Exchange Trade System, as of January 2019.
^13 As illustrated in Fig.14. Source: CCDC, SCH, Standard Chartered, Invesco, as of Dec. 31, 2018.
^14 Source: HSBC, as of Dec. 31, 2018.