Daily Management Review

China opens Bond Connect program for foreign investors


07/03/2017


On Monday, China and Hong Kong launched the Bond Connect program. This is cross-traded bonds, which open access to the market of China's debt securities for foreign investors. The market’s volume is estimated at $ 9 trillion, writes The Wall Street Journal.



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China is fulfilling its promises to liberalize and strengthen the domestic capital market. The authorities timed the launch of bond trades to the 20th anniversary of the return of Hong Kong under the control of China.

In May, the Central Bank of China approved the program of bond trades in addition to the previously launched cross-share trading schemes between Hong Kong, Shanghai and Shenzhen (Stock Connect).

So far, only the "northern direction" of cross-selling is worked, that is, foreign investors without a trading account in China can buy and sell Chinese bonds. The opening date of the "southern channel", which will give Chinese investors access to the Hong Kong stock exchange, has not yet been announced.

Trades on Monday were highly active. For the first 22 minutes, the volume of transactions exceeded 2 billion yuan ($ 295 million). Among the first investors to be mentioned in the Bond Connect program were HSBC Holdings, BNP Paribas, Citigroup, Standard Chartered and Bank of China's asset management division.

China's debt securities market is the third largest in the world, but foreign investors own less than 1.5% of bonds (1.4% according to Goldman Sachs, or 1.25% according to Standard Chartered). BNP Paribas reckons the international rate of foreign investment in the domestic bond market is 10%.

"We continue to stick to the opinion that the inflow of additional investments into Chinese domestic bonds may exceed $ 1 trillion in the coming decade," notes Goldman Sachs. Standard Chartered expects a net inflow of investment in the China bond market of 100 billion yuan by the end of the year.

The Chinese authorities approved 20 market makers for Bond Connect, including 14 Chinese and six foreign.

source: wsj.com






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