China widens investor access as bond trading link launches

04 July, 2017, 01:02 | Author: Valerie Burke
  • One Country, Two Systems to Power HK: Lam

At the launching ceremony for the bond connect between mainland China and Hong Kong on July 3rd, PBOC's Deputy Governor Pan Gongsheng said that "the bond link scheme will serve as a bridge to connect mainland markets with worldwide markets".

Initially, Chinese bonds can be bought by banks, insurers and fund managers via Hong Kong.

The aggregate trading volume was 7.05 billion yuan, the China Foreign Exchange Trade System said on its website. Yet, unlike the stock links, the bond connect will only be one-way for now, allowing foreign investors to purchase Chinese bonds through the channel, but not vice versa.

The launch coincided with the 20th anniversary of Hong Kong's handover from Britain to China on Saturday, when Chinese President Xi Jinping presided over the inauguration of the city's new leader, Carrie Lam.

The connection will increase the supply of yuan-denominated assets that can be held by global investors as Beijing steps up the internationalization of its currency.

But, despite such moves, restrictions continue to hold back foreign investors: while the Chinese bond market is now the third largest in the world, Bloomberg estimates overseas investors own just 1.5 percent of Chinese bonds.

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HSBC Holdings Plc, Standard Chartered Plc and Citigroup Inc were among banks announcing they had completed their first deals as market makers in the new system.

"Bond Connect will clearly make it easier for investors to access the Chinese bond market, which in turn makes it easier for investors to hold renminbi", Andy Seaman, chief investment officer of London-based Stratton Street, said in a note.

"By broadening the investor pool to attract more foreign investment, we believe China should improve the quality of its debt markets, as well as generate cash inflows that will help with Beijing's battle to stem capital outflows", said CG Lai, head of global markets for China at BNP Paribas. Accern also gave media stories about the Wireless communications provider an impact score of 16 out of 100, indicating that recent news coverage is very unlikely to have an effect on the company's share price in the near term.

"Over the past year China has been normalizing policy and we've seen the currency stabilize and bond yields start to become more attractive".

Their statement said the "bond connect" arrangement between the Hong Kong and mainland Chinese markets went into "experimental operation" from Monday. Those two schemes allow both northbound and southbound trade.

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