Reforms announced by Chinese regulators last month have put the country's stock and bond markets on the threshold of gaining entry to global benchmark indexes.
The quest of Shanghai- and Shenzhen-listed A shares to win inclusion in benchmarks, such as MSCI's emerging markets stock index, has been a drawn-out affair. By contrast, the People's Bank of China's announcement on Feb. 24 of quota-free access to China's interbank bond market for all but the most speculative foreign investor segments was sudden. It could prove to be the more significant development for foreign institutional investors, some market players contend.
The move will be welcomed by big investors, such as pension funds, struggling to find a deep bond market offering positive returns in a world where “yields are extremely low, or negative, everywhere,” said Rajeev De Mello, Singapore-based portfolio manager and head of Asian fixed income with Schroder Investment Management (Singapore) Ltd.
“China's dismantling of bond markets quotas is very good news, because fixed-income investors now have a safe and better-yielding alternative to the bubble markets in developed economies,” agreed Jan Dehn, head of research with London-based emerging markets boutique Ashmore Investment Management Ltd., writing in the firm's latest weekly market update.
The size of China's fast-growing bond market is roughly 50 trillion renminbi ($7.66 trillion). Late March 1, the 10-year Chinese government bond was yielding 2.94%, compared to the 1.827% yield on benchmark 10-year U.S. Treasuries and the 0.148% on offer by the 10-year German bund.