Foreign investors ready to connect with Chinese bonds

Hong Kong Monetary Authority Chief Executive Norman Chan (2nd L), People's Bank of China Deputy Governor Pan Gongsheng (2nd R) and Hong Kong Chief Executive Carrie Lam (R) attend the launching ceremony of Bond Connect at Hong Kong Exchanges in Hong Kong, China, July 3, 2017.[Photo/Agencies]

Global investors are expected to invest more in Chinese bonds through the mainland-Hong Kong connect on the back of the stable renminbi exchange rate and the country's fast-growing economy, experts said.

The bond connect platform opened last month.

"Higher overall yield, comparatively healthier fundamentals and fast-growing economy attract foreign capital to China," said Chen Jiahe, chief strategy analyst of Cinda Securities.

The yield on China's 10-year treasury bond is now about 3.6 percent, while it is 0.08 percent on the Japanese treasury bond and 2.25 percent in the United States'.

China's economy continued steady expansion in the first half of this year with GDP up 6.9 percent, supporting the Chinese currency.

Since late May, the exchange rate between renminbi and the dollar has risen nearly 2.5 percent, with foreign exchange reserves rising for five consecutive months, which significantly eased the capital outflow and renminbi depreciation expectations.

Statistics from China Central Depository& Clearing Co Ltd show that foreign institutional investors increased their holdings to 37.8 billion ($5.7 billion) worth of yuan bonds in the Chinese mainland, the largest amount since October last year, showing that FIIs have heightened interest in entering the mainland bond market.

By the end of July, the total amount of bonds bought by FIIs hit a record 822.94 billion yuan, up 4 percent month-on-month, the highest monthly increase since September last year, according to data from CCDC, the central securities depository.

Last month, FIIs gained increased access to the Chinese mainland's $10 trillion bond market. The bond connect platform allows qualified overseas investors to trade bonds on the mainland interbank bond market, including treasury bonds, local government bonds, policy bank bonds and commercial bank bonds.

The platform's easy access to the mainland's bond market and its accordance with foreign trading habits drew in foreign investors, Bloomberg quoted Zeng Jie, an official from China Merchants Bank, as saying.

Bond connect will help diversify investors, enliven the market and enrich the participants' structure, said Zeng, adding that the proportion of foreign institutional investment in mainland's bonds will increase gradually.

Statistics show that short-term and super short-term financing vouchers had attracted overseas capital in July. That is because currency exchange rate risk will not be high in the short term, given the steady Chinese currency, Shanghai Securities News quoted a senior official from ratings agency Moody's as saying.

However, as a whole, government bonds and debt from the China Development Bank are still the major type of renminbi bonds held by overseas investors.

In Chen's opinion, another reason why FIIs are flocking to the Chinese bond market is that they find it easy to make money from China's immature market facing a relatively low level of Chinese investors.