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China, today

All aboard! China bonds enter local debt indices

17 October 2019
Author: Wilfred WeePortfolio Manager

Many emerging debt investors will be getting more exposure to local currency Chinese bonds from February next year. That’s when liquid CNY-denominated Chinese government bonds will start to be included in the flagship JP Morgan EM suite of indices, among the most widely followed emerging local debt benchmarks.

It’s the latest step in the integration of China’s debt markets into the global mainstream, which we’ve written about several times now on Emerging Perspectives.

As we noted back in April, the question for investors when considering Chinese bonds is rapidly moving from ‘if?’, to ‘when, how much and how?’. From a long-term perspective, we remain positive on the opportunity of investing in the Chinese bond market.

To be phased in over 10 months from 28 February 2020 (a date picked to avoid the lower-liquidity Chinese New Year period), inclusion in the flagship JP Morgan EM indices will see Chinese bonds reach the following weights:

  • GBI-EM Global Diversified: 10% (capped)
  • GBI-EM Global: 15.21%
  • GBI-EM (Narrow) Diversified: 10% (capped)
  • GBI-EM (Narrow): 19.95%

Other key points to note:

Eligibility: Nine issues are expected to be included, all of which must have a minimum instrument size of US$1 billion and minimum remaining maturity of 2.5 years post-phasing (i.e., maturing after 28 April 2023).

Yield/duration impacts: Inclusion is expected to improve overall credit quality while lowering the yield on the GBI-EM Global Diversified by 17bps, and on the GBI-EM Global by 39bps. Index durations won’t change significantly.

Emerging market: These markets carry a higher risk of financial loss than more developed markets as they may have less developed legal, political, economic or other systems.

Investments carry a risk of capital loss.

Wilfred Wee
Wilfred Wee Portfolio Manager

Important Information

This material is for informational purposes only and should not be construed as an offer, or solicitation of an offer, to buy or sell securities. All of the views expressed about the markets, securities or companies reflect the personal views of the individual fund manager (or team) named. While opinions stated are honestly held, they are not guarantees and should not be relied on. Investec Asset Management in the normal course of its activities as an international investment manager may already hold or intend to purchase or sell the stocks mentioned on behalf of its clients. The information or opinions provided should not be taken as specific advice on the merits of any investment decision. This content may contain statements about expected or anticipated future events and financial results that are forward-looking in nature and, as a result, are subject to certain risks and uncertainties, such as general economic, market and business conditions, new legislation and regulatory actions, competitive and general economic factors and conditions and the occurrence of unexpected events. Actual results may differ materially from those stated herein. All rights reserved. Issued by Investec Asset Management, issued September 2019.

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