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Foreign Investors Increase China Bond Exposure in March

Foreign Investors Increase China Bond Exposure in March

(3 April 2020 – Shanghai) Offshore holdings of Chinese government bonds edge up in March amid coronavirus-driven panic that prompted a global flight to liquidity, although at the slowest pace since February 2019.

According to data from China Central Depository and Clearing Co (CCDC), foreign investors are holding CNY1.34 trillion worth of Chinese government bonds as of the end of March, up 0.15 percent from the previous month. This represents the twelve consecutive monthly record high.

 

Offshore holdings of all policy bank bonds rose 1.14 percent to a record CNY542.5 billion, while the total foreign holdings of bonds cleared through CCDC increased by 0.32 percent to CNY1.96 trillion.

 

The incremental rise in offshore holdings masks a frenzy of trading activity, however. Latest data showed that offshore investors traded record volumes of bonds in March through China’s Bond Connect programme.

 

While foreign investors have steadily increased their investments in onshore Chinese bonds over the past year, some net selling of Chinese government and policy bank bonds have been seen in recent weeks.

 

Market volatility has prompted global index providers to delay the inclusion of Chinese bonds and stocks into their benchmarks.

 

According to new Bond Connect Research from East and Partners, Chinese government and policy bank bonds account for just 14.4 percent of the overall China allocation for global fixed income investors. Corporate bonds make up the bulk of their bond exposure at 81.2 percent on average. These allocation trends are expected to remain in the near term.

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