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Funds approach China’s domestic bond market with caution

Funds approach China’s domestic bond market with caution

(1 November 2018 - Asia) It seems foreign investors are more than a little wary when it comes to investing in China’s $12 trillion domestic bond market, a recently published FinanceAsia survey reveals.

Since Bond Connect was launched in July 2017, there’s been some definite fine tuning by mainland China to lift constraints for foreign investment inflows via Hong Kong, for the domestic debt market.

One of the most significant moves is yet to come, with the proposed April 2019 inclusion of China bonds in the key benchmark Bloomberg-Barclays Global Aggregate Index via Bond Connect. This strategic step is seen as a breakthrough by investors seeking to enter China’s domestic market and who, according to FinanceAsia’s recent poll, seem to be doing a fair bit of fence-sitting at the moment.

Although Bond Connect has been operating for just over one year, foreign holdings make up less than 2% of this market, so it’s clear there is still a degree of caution being displayed by fund managers not already invested in Bond Connect. Around 65% of respondents to FinanceAsia’s poll believe barriers to entering China’s bond market remain high or very high when compared to other local bond markets around the world, and 69% or nearly two-thirds of these respondents, are not currently invested in China’s onshore bond market.

Since the scheme caters for inflows rather than outflows, investors have indicated they are concerned about getting their money out, once they have invested in China.

According to East and Partners Asia’s  lead analyst Sangiita Yoong, locking the Bloomberg-Barclays Global Aggregate Index into Bond Connect will be a game changer, reassuring offshore investors about credit ratings and cross border transactions. “China needs to do more to both reassure potential investors and to encourage those who have already entered the China bond market. But once the index is locked in, we will see enormous demand from global fixed income investors,” Yoong says.

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 (, commercial director for more information.

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