Barriers to entry still too high investors say
(16 November 2018 – Asia) China’s gradual opening up of its financial markets to foreign investment presents a significant opportunity, but the pace of change still frustrates investors according to FinanceAsia’s inaugural Bond Connect survey 2018.
Nearly 80% of investors who responded to FinanceAsia’s Bond Connect survey rated entry barriers to mainland China’s onshore bond market from high (42%), very high (23%), to insurmountable (14%). But more than a third of respondents revealed they would invest in the scheme within the next five years, attracted by the scale and opportunities in this dynamic market.
“Given the current economic climate, we see that there is much growth potential for foreign investors to participate in this market,” says East and Partners Asia’s lead analyst Sangiita Yoong while acknowledging that the majority of fund managers are proceeding with caution.
“There is still high demand because China debt offers diversification to portfolios with low correlation with emerging market local currency bond and the rate of return on onshore bonds is still attractive compared with that of local markets. As well, bond yield is quite attractive although it has decreased due to Chinese yuan depreciation,” says Yoong.
Fund managers surveyed by FinanceAsia and who are already investing onshore through Bond Connect, appear to favour government bonds ahead of policy bank and corporate bonds, while saving their most conservative approach to municipal bonds.
Yoong explains the preference for government bonds over corporate bonds is probably due to a lack of accurate on-the-ground knowledge and research and is likely to see a reversal in the future.
“Corporate bonds are going to have the greatest projected growth rate, in comparison to municipal and government bonds. It’s quite an interesting scenario, there have been reports that corporate bonds are high default bonds but this default is largely confined to the property sector.
To learn more about investors’ apprehension to Bond Connect and the in-depth research conducted by FinanceAsia’s research partner East & Partners Asia, please contact Keith Frith (firstname.lastname@example.org), commercial director for more information.