As the domestic new crown pneumonia epidemic has been effectively controlled and the financial market opening policy has increased, the enthusiasm of foreign investors to increase Chinese bonds continues to rise.
According to the latest data released by the China National Debt Depository and Clearing Co., Ltd., as of the end of August this year, the institution has custodial bonds for overseas institutions with a denomination of 2461.955 billion yuan, an increase of 117.831 billion yuan from the previous month, an increase of 5.03%.
This is the 21st consecutive month that foreign institutional investors have increased their holdings of Chinese bonds since December 2018.
The report released by Bond Connect recently also showed that in August, Bond Connect had a total of 5,086 transactions, with a total trading volume of 409.3 billion yuan and an average daily trading volume of 19.5 billion yuan.
As of the end of August, the number of foreign institutional investors entering the market through Bond Connect reached 2,106, and 40 new ones were added that month, and 74 of the world's top 100 asset management companies have completed their filings and entered the market.
“The continuous increase in foreign holdings of Chinese bonds indicates that China’s bond market has become more attractive.” Pan Helin, executive director of the Institute of Digital Economy, Zhongnan University of Economics and Law, believes that there are many reasons. First, China’s bond market has accelerated and foreign capital has entered China. Bond market channels are unimpeded; second, China’s epidemic has been brought under control, economic recovery is accelerating, the RMB exchange rate has stabilized, RMB assets are safer, and the hedging effect is prominent. Foreign capital has more confidence in the Chinese market; third, global quantitative easing policies have been launched. Interest rates are at a relatively low level, and the spread between Chinese and foreign bonds is relatively high, which has investment value.
Sun Binbin, chief fixed-income analyst at Tianfeng Securities, said that foreign institutions’ increased holdings of renminbi bonds continue to record highs, mainly due to the expansion of the Sino-US interest rate differential to historical highs, and domestic interest rate bonds have further increased the attractiveness of foreign institutions.
Due to the repeated epidemics in the United States, it will take some time for the economy to recover. It is expected that the Sino-US interest rate differential will remain high in the short term, and foreign institutions may maintain their holdings of domestic interest rate bonds in the next few months.
In the future, it will be more convenient for foreign institutional investors to allocate RMB bond assets.
Recently, the “Announcement on Matters Concerning Foreign Institutional Investors’ Investment in China’s Bond Market (Draft for Comment)” jointly drafted by the People’s Bank of China, China Securities Regulatory Commission, and State Administration of Foreign Exchange clarified that foreign institutions will no longer submit applications in the name of products and do not need to Products are introduced into the market one by one.
It is stipulated that overseas institutions that enter the inter-bank bond market through direct market entry channels and Bond Connect channels do not need to apply repeatedly, and can invest in the exchange bond market directly or through interconnection.
At the same time, foreign institutions that have entered the market can conduct spot bond transactions, and can conduct bond lending, bond forwards, forward interest rate agreements, interest rate swaps and other transactions based on hedging needs.
"Compared with many foreign investors who used agent banks to carry out spot bond transactions in the inter-bank bond market, this direct transaction service model has greatly improved transaction efficiency and facilitation." said a bond trader from an overseas foreign investment regulatory agency.
The People's Bank of China recently released the "Renminbi Internationalization Report 2020" that as of the end of 2019, the stock of China's bond market reached 99 trillion yuan, of which overseas entities held 2.3 trillion yuan, a year-on-year increase of 26.7%.
This fully reflects the confidence of international investors in the long-term and healthy development of China's economy and their recognition of the degree of openness of China's financial market, which will help to better promote a win-win cooperation between international investors and China's economic cooperation.
Our reporter Yao Jin