CFIC Introduction
At present, the mainland's monetary policy continues to adhere to the principle of "focusing on me", and RMB bonds, with their independence and stability, will stimulate more foreign investors' enthusiasm for investment for a period of time.
Original title: [Xinhua Interpretation] increased holdings by 1.34 trillion yuan a year! The onshore bond market has become a key "position" for foreign investors to optimize their investment portfolios
The high-quality opening up of the mainland bond market has attracted worldwide attention in the past few years, and RMB bonds have long become an important option for foreign capital allocation. According to the latest official data, foreign investors have increased their holdings of domestic interbank market bonds for 12 consecutive months, and the cumulative scale of this round of holdings has reached 1.34 trillion yuan.
According to the industry's view, the international recognition of RMB financial assets has been continuously enhanced under the joint "blessing" of factors such as the promotion of the systematic policy of opening up by the mainland regulatory authorities, the increased volatility of overseas markets, and the relatively friendly interest environment between China and the United States. At present, the mainland's monetary policy continues to adhere to the principle of "focusing on me", and RMB bonds, with their independence and stability, will stimulate more foreign investors' enthusiasm for investment for a period of time.
"Twelve consecutive increases" continue to pace Foreign capital is deeply involved in the domestic bond market
From the perspective of aggregate volume, the enthusiasm of foreign investors to invest in RMB bonds is increasing. A few days ago, data released by the Shanghai headquarters of the People's Bank of China showed that as of the end of August 2024, foreign institutions held 4.52 trillion yuan of bonds in the interbank market, accounting for about 3.1% of the total custody of the interbank bond market. In terms of types of bonds, foreign institutions held 2.28 trillion yuan of government bonds, accounting for 50.4%, 1.12 trillion yuan of interbank certificates of deposit, accounting for 24.8%, and 0.95 trillion yuan of policy financial bonds, accounting for 21.0%.
According to Xinhua Finance, from September 2023 to August 2024, the scale of bonds held by foreign institutions in the interbank market increased for 12 consecutive months, with 3.19 trillion yuan, 3.24 trillion yuan, 3.49 trillion yuan, 3.67 trillion yuan, 3.87 trillion yuan, 3.95 trillion yuan, 4.00 trillion yuan, 4.05 trillion yuan, 4.22 trillion yuan, 4.31 trillion yuan, 4.46 trillion yuan, and 4.52 trillion yuan, respectively, with a month-on-month increase of 10 billion yuan and 50 billion yuan, respectively, 250 billion yuan, 180 billion yuan, 200 billion yuan, 80 billion yuan, 50 billion yuan, 50 billion yuan, 170 billion yuan, 90 billion yuan, 150 billion yuan, 60 billion yuan, and the cumulative increase in holdings reached 1.34 trillion yuan.
On the same day, the Central Clearing Company released the results of the special statistics for foreign investors in August 2024. According to the data, as of the end of August, the total amount of bonds deposited by foreign institutions in the Central Clearing Company was 3.26 trillion yuan. In terms of channels, the custody volume of the "Global Connect" channel was 2.45 trillion yuan, the custody volume of the "Bond Connect" channel was 808.9 billion yuan, and the custody volume of the "Global Connect" channel accounted for 75.21%.
From the perspective of transactions, the trading activity of foreign institutions remained at a high level. On the one hand, data from the Shanghai headquarters of the central bank showed that the cash bond trading volume of foreign institutions in the interbank bond market in July was about 1.59 trillion yuan, and the average daily trading volume was about 72.3 billion yuan. On the other hand, in August, the total amount of transactions and settlements of foreign institutions in the Central Clearing Company was 1.93 trillion yuan. Among them, the settlement volume of spot bond transactions through the "Global Connect" channel was 455.9 billion yuan, the settlement volume of repurchase transactions was 744.7 billion yuan, totaling 1.20 trillion yuan, and the settlement volume of spot bond transactions through the "Bond Connect" channel was 724.8 billion yuan.
In addition, from the perspective of participants, the domestic bond market has been attracting more overseas institutions to participate. In August, six new foreign institutions entered the interbank bond market. As of the end of August, a total of 1,145 foreign institutional entities had entered the market, of which 580 had entered the market through direct investment, 827 through the "Bond Connect" channel, and 262 through both channels.
Ming Ming, chief economist of CITIC Securities, told Xinhua Finance that "foreign investors have different types of investment in major types of assets according to their different asset allocation strategies and trading strategies, but overseas funds continue to flow into the domestic market, whether they invest in stocks, bonds or other domestic RMB assets, which fully reflects their full confidence in the stability of the RMB currency, as well as the optimistic expectation that the mainland's economic fundamentals and financial environment will remain stable." ”
"Mainland onshore bonds are attracting overseas investors with their relative independence and risk diversification, and it is expected that foreign institutions will maintain their holdings of RMB bonds for a considerable period of time." Ming Ming predicted.
Eric Robertsen, global chief strategist at Standard Chartered, also said, "The market's demand for long-term assets remains firm, and international investors will still buy the dip if the subsequent long-term bond issuance brings some room for bond price correction." ”
Institutional opening-up yields rapid results Foreign investors are calling for more innovative investment products and risk hedging tools
As an important part of the financial market, the opening up of the bond market plays a pivotal role in the process of high-level financial opening-up. At present, there are new opportunities for the high-quality opening up of the mainland bond market, the institutional opening-up policy is accelerating, the bond market regulatory mechanism and legal system are becoming more and more perfect, and the internationalization of the RMB and the opening up of the bond market will achieve mutual benefit.
In terms of open channels, Bond Connect Northbound has been in operation for more than seven years, and due to the convenient application process and continuous improvement of hedging tools, Bond Connect has become a convenient channel for international investors to deploy in China's bond market in recent years, and has become an important bridge for the opening up of the bond market together with another channel, the CIBM Direct.
From the perspective of policy support, in May this year, Swap Connect launched a number of optimization measures, including the addition of standardised interest rate swap contracts with the settlement date of the international money market (IMM) as the payment cycle, and the extension of the preferential fee period. These measures have better mobilized the enthusiasm of overseas institutions to participate in the "Swap Connect", so as to meet the diversified risk management needs of domestic and foreign investors, and further reduce the cost of investor participation.
Recently, the General Office of the State Council issued the Action Plan for Solidly Promoting High-level Opening-up and Attracting and Utilizing Foreign Investment, which includes "expanding the business scope of foreign-funded financial institutions to participate in the domestic bond market" to further facilitate the participation of foreign-funded financial institutions in China's bond market; Support qualified foreign financial institutions to participate in the underwriting of domestic bonds in accordance with regulations; Study and steadily promote more qualified foreign-funded banks to participate in the pilot project of treasury bond futures trading. The People's Bank of China proposed at the 2024 work conference to "deepen the opening up of the financial market and improve the convenience of foreign investors to participate in China's bond market." ”
At present, the story of the opening up of the mainland bond market to the outside world is "unfinished". According to feedback from a number of market institutions and researchers, overseas investors are looking forward to a broader and deeper understanding and participation in the mainland bond market. In particular, in the context of the "bull market" of domestic bonds, and with the support of the regulatory authorities to promote the construction of high-yield bonds, ESG-related bonds and other credit bonds, more diversified investment products and risk hedging methods will further enhance the enthusiasm of foreign investors in the future.
Huang Ka-shing, Managing Director and Head of Fixed Income Asia Pacific at Invesco, told Xinhua Finance, "We expect the regulators to continue to promote policy reform and innovation to provide more convenient and diversified investment opportunities for foreign investors, including promoting the inclusion of green bonds, innovative bonds of financial enterprises and other products into the investment scope as soon as possible." At the same time, it is also hoped that the regulators will strengthen the protection of the interests of bond investors, improve the information disclosure system and the relevant legal system for bond default disposal, improve the quality of domestic credit ratings, and vigorously promote the integration of accounting standards with international standards, so as to enhance the attractiveness of credit bonds to foreign investors. ”
"Of course, providing basic liquidity management tools for foreign investors is also an important development direction. At present, the repurchase of interbank bond market only allows the participation of three types of institutions, including foreign central banks. If the policy can gradually liberalize the repurchase business of overseas commercial institutions to meet their needs for liquidity management and improve the efficiency of capital use, it will further boost the attractiveness of the domestic bond market to foreign investors. Huang Ka-shing added.
Commenting on further enhancing the attractiveness of the onshore bond market from the supply side, Aberdeen China's Head of Fixed Income, Mr. Wu Ziyu, told Xinhua Finance, "There is still a lot of potential to be tapped in China's onshore bond market, and investment opportunities such as RMB credit bonds and ESG bonds meet the urgent needs of many foreign investors. In the future, it is recommended to encourage long-term funds on the domestic debt side to increase their support for the issuance of sustainable project-linked bonds, so as to build an open-ended pure bond ESG fund that meets international standards, so as to attract more overseas capital inflows. ”
Source of this article: Xinhua Finance
Author: Wang Jing
WeChat editor: Wang Qian
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