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A key dynamic currently taking place in China’s bond market is the opening up of onshore bonds (bonds that are traded on China’s mainland) to foreign investors, as we discussed earlier this year.
The inclusion of these bonds to the Bloomberg Barclays Global Aggregate Index – a process which began in April – is a milestone with significant implications both for the composition of China’s overall bond market and for global fixed income investors’ portfolios.
The Bloomberg Barclays Global Aggregate Index now includes 347 onshore Chinese bonds, amounting to USD 840 billion of outstanding debt.1 Local currency Chinese bonds currently rank as the 6th largest currency component of the index and by mid-2020 they are projected to overtake Canadian and British bonds to reach 4th place, with an estimated USD 3.4 trillion represented on full index inclusion.2
Chinese bond basics
Onshore bonds
- Issued onshore, by Chinese entities
- CNY denominated
Panda bonds
- Issued onshore, by non-Chinese entities
- CNY denominated
Not to be confused with:
Dim Sum bonds
- Issued offshore
- CNH denominated
Kung Fu bonds
- Issued offshore, by Chinese entities
- USD denominated
To reflect this evolution, we’re making a change to our All China Bond strategy, moving away from a performance comparison index that comprises offshore bonds only. From September, we’ll be measuring ourselves against the Bloomberg Barclays Global Aggregate - Chinese Renminbi Index, which is the CNY carve-out of Bloomberg Barclays Global Aggregate Index.3 Widely used by investors across the world, we believe this index better reflects the broad China bond opportunity set.
China’s bond market is evolving, the role of onshore bonds is rising and their march to the mainstream continues apace. The question for investors has shifted from ‘should we invest in Chinese bonds?’ to ‘how best can we access the opportunity?’.
About Investec’s All China Bond strategy
Since June 2014, All China Bond has offered investors a way to access the broad universe of China-centric bonds – a universe rich in opportunities for active investors, bringing all-important yield potential and portfolio diversification benefits.
Our active investment approach is benchmark agnostic. That won’t change with the new performance comparison index. The team will continue to search the broad universe – spanning onshore and offshore bonds – aiming for the best investment opportunities across the market cycle, without being restricted to any index.
1. Source: Bloomberg, as at August 19, 2019. Projections based on the fact that the index inclusion rate is 0.3% per month.
2. Source: Bloomberg, Investec Asset Management as at August 19, 2019.
3. CNY is the currency symbol traded onshore. Until the end of August 2019, the strategy’s performance comparison index will be Markit iBoxx ALBI China Offshore Index, which comprises offshore CNH (Dim Sum) Bonds.
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Investments carry a risk of capital loss.
