Bond programme offers new connection to Chinese market

by Abel Hampton July 6, 2017, 0:09
Bond programme offers new connection to Chinese market

Two Chinese policy banks are racing to issue bonds through a new trading link with Hong Kong even though bankers say the framework is not fully ready.

China's inter-bank bond market has been promoting opening-up in recent years.

The move could further boost the Shenzhen Hong Kong Stock Connect trading link which was launched at the end of a year ago, alongside the existing Shanghai trading link.

Hong Kong-listed Tencent is the company's largest shareholder, with a 65.3% stake. HSBC Holdings plc cut China Mobile (Hong Kong) from a "buy" rating to a "hold" rating in a report on Thursday, March 23rd. But traders and foreign investors warned against reading too much into first-day trading numbers. The majority were buying orders, including 128 transactions worth 4.9 billion yuan. It also subscribed to the first primary bond issuance under the Bond Connect, by Agricultural Development Bank of China, according to the statement.

"The continued liberalization of the mainland's capital account and RMB internationalization will progressively raise demand from overseas investors for RMB asset allocation, while the mainland has been proactively rolling out measures to facilitate overseas investors' access to its bond market", said Chan, who believed that bond connect would enhance overseas investors' participation in the mainland bond market.

The link allows investors based in Hong Kong to trade directly in China's $9 trillion market for debt securities, and is modeled on similar links between stock-markets in the territory and the mainland.

Chinese regulators have also shown greater flexibility in adopting worldwide standards, with foreign investors being allowed to settle bond transactions on a T+2 basis, on top of the original T+0 and T+1 arrangement.

Reluctance by overseas investors to enter the market amid fears over the stability of the Chinese yuan, and over potential delays to Beijing's reforms of the capital markets has kept overseas holdings to less than 2 percent. "China has structural outflows and it always will, as long as people want to diversify and it keeps credit growing so fast".

Citi also plans to consider including mainland Chinese bonds in three government bond indices. The stock had a trading volume of 240,667 shares.

The project represents China's latest attempt to expand overseas access to its markets, having already established a new trading link between Hong Kong and Shanghai in 2014, and a further link between Hong Kong and Shenzhen in late 2016.

"Chinese Treasurys certainly offer a premium to say, developed market sovereigns, with a very stable currency", Brendan Ahern, chief investment officer at KraneShares, said when the bond scheme was announced earlier this year.

Endre Pedersen, CIO of Fixed Income at Manulife Asset Management, added: "We are gaining streamlined, electronic access to the third largest bond market in the world".

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