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Foreigners to Still Pay Regard to Chinese Assets Despite Three-Month Bond Selloff
Zhou Ailin
DATE:  May 19 2022
/ SOURCE:  Yicai
Foreigners to Still Pay Regard to Chinese Assets Despite Three-Month Bond Selloff Foreigners to Still Pay Regard to Chinese Assets Despite Three-Month Bond Selloff

(Yicai Global) May 19 -- Overseas investors said they will still pay attention to Chinese assets even through they offload yuan bonds worth almost CNY300 billion (USD44.3 billion) in the last three months due to such factors as the narrowing spread between Chinese and US interest rates, increasing geopolitical risk, and the US Federal Reserve's aggressive rate hikes. 

Foreign investors sold a net CNY108.5 billion (USD16.1 billion) of yuan-denominated bonds in April, extending the selloff to a third consecutive month, according to data from China Central Depository & Clearing and Shanghai Clearing House. That compared with CNY80 billion in February and CNY112.5 billion in March. 

CNY42 billion in Chinese government bonds and CNY45.4 billion of policy financial bonds were sold by overseas institutions last month. Foreign investors held 10.5 percent of all Chinese government debt at the end of last month, down from 10.8 percent in March. 

The selloff has continued this month, with a focus on policy financial bonds, also known as policy bank bonds, traders and analysts told Yicai Global. 

Foreign institutions are also selling assets in other emerging markets. Their holdings of Asian bonds fell USD18.9 billion last month, Barclays data showed. China saw the biggest outflow at USD15.2 billion, followed by Malaysia at USD2.6 billion, Indonesia at USD1.4 billion and India at USD500 million. 

But international institutions said the short-term market turbulence will not affect their attitude to Chinese assets in the mid-to-long run. 

The United States is in a rate-hike cycle now, so an outflow of international funds from emerging markets is not unusual, Charles Chiang, head of Asia Pacific equity at J.P. Morgan, told Yicai Global. The gradual increase in the share of Chinese bonds held by foreigners will still be a trend in the medium to long term, he said. 

China cannot be overlooked if a diversified global investment portfolio is desired, international asset manager Aberdeen said recently. 

At about CNY4 trillion (USD591.4 billion), the level of Chinese bonds held by foreign capital is still low, compared with a domestic bond market in excess of CNY130 trillion (USD19.22 trillion), Wu Ziyu, head of fixed income at Aberdeen China, told Yicai Global.

The yuan is still more stable than the currencies of most emerging markets despite some short-term fluctuations, he added.

Editors: Xu Wei, Tom Litting

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Keywords:   Bonds,Foreign Capital