(Yicai Global) Sept. 25 -- FTSE Russell’s decision to add Chinese sovereign debt to its influential global government bond benchmark may attract as much as USD170 billion of additional funds into the world’s second-largest bond market.
The much-anticipated move is likely to foster passive fund inflows of between USD140 billion and USD170 billion by the end of 2022, the macro strategy team at Standard Chartered Bank China said in a note, as it may lift foreign holdings of the debt by between 6 percent and 7 percent and even by as much as 20 percent over the period.
FTSE Russell announced after US markets closed yesterday that it will incorporate China into its flagship World Government Bond Index from October next year. The move was widely expected after the global index compiler declined to add China in its annual review last year. The decision is still under review and final approval will be made next March, the London-based firm said.
It is the third major global bond index, after Bloomberg Barclays and JP Morgan, to include Chinese government debt and signals that the structure of the country’s bond market is becoming increasingly complete, said Yang Jing, general manager of SCB China’s financial markets department.
Yuan-based bonds have become a haven for many global investors, said Samuel Fischer, head of Deutsche Bank China’s debt capital markets team. Supported by sound economic fundamentals, the market for yuan bonds has outperformed its global and emerging market peers.
Ten-year Chinese treasury bonds are yielding about 3 percent, the highest among investment-grade bonds in a zero-interest-rate era. That makes the strongest case in more than a decade for international investors to diversify their assets.
Overseas investors will now quicken their entry into China, helping stabilize the yuan exchange rate and the sound development of the Chinese economy, Yang added.
The strategy team covering the global interest rate market at Swiss lender UBS forecasts potential passive fund inflows of between USD125 billion and USD150 billion after the inclusion, while the head of macro strategy analysis at Germany’s Deutsche Bank China anticipates an extra USD120 billion.
But the inflows will be gradual because the inclusion will not take place until next year, Zhang Meng, a strategist with London-based Standard Chartered, told Yicai Global two days ago.
Editor: Kim Taylor