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Original title: Foreign holdings of 4 trillion yuan record a record increase in bonds to seize opportunities in China
● Our reporter Zhang Qinfeng Trainee reporter Lian Run
The annual increase of about 750 billion yuan, the year-end holdings of 4 trillion yuan, the highest monthly turnover of over 1 trillion yuan, and the number of investors entering the market exceeded 1,000… On January 10, 2021, the “annual” annual investment in Chinese bonds by overseas institutions Bill” revealed.
A series of figures show that overseas institutions’ investment in domestic bonds is sustainable and stable, and RMB assets including bonds are attractive to global investors.
Experts said that the long-term stable development of China’s economy and the continuous improvement of financial openness have provided a solid foundation for attracting foreign capital inflows. There is much room for improvement in the level of foreign investment in the future. The general trend of foreign investment in Chinese bonds will not change, and the pace will be more stable.
deepened participation
On January 10, the Shanghai Headquarters of the People’s Bank of China issued a briefing report on the investment of foreign institutions in the inter-bank bond market in December 2021. As of the end of 2021, foreign institutions held 4 trillion yuan of bonds in the inter-bank market, accounting for about 4 trillion yuan in the inter-bank bond market. 3.5% of the hosting volume, both figures hit new highs. Compared with the end of 2020, the bond positions of overseas institutions increased by about 750 billion yuan, and the proportion of positions increased by about 0.3 percentage points.
According to estimates, in December 2021, foreign institutions increased their holdings of bonds in the inter-bank market by about 70 billion yuan, the ninth consecutive month of increased holdings. According to data released by the China Central Clearing Corporation, in December 2021, the scale of bonds hosted by foreign institutions in the institution increased by 78.7 billion yuan, which has increased for 37 consecutive months since December 2018.
International investors are increasingly an active force in China’s bond market. In December 2021, the spot bond trading volume of overseas institutions was about 934.5 billion yuan, and in July it exceeded 1.1 trillion yuan.
The briefing also showed that more international investors were entering the Chinese bond market. In terms of legal entities, as of the end of 2021, a total of 1,016 overseas institutions have entered the market, and 111 new institutions have been added that year. The settlement agency model and the “Bond Connect” model provide international investors with diversified market entry options.
Larger investment scale, more institutions entering the market, and more active transactions… Multi-dimensional data shows that the participation of international investors in China’s bond market continues to deepen.
“Loyal Buyer”More
Among all kinds of bonds, foreign institutional investors favor government bonds. The aforementioned briefing disclosed that as of the end of 2021, the main custody bonds of overseas institutions are government bonds, with a custody volume of 2.45 trillion yuan, an increase of about 570 billion yuan compared with the end of 2020, and the proportion of government bond holdings has risen from 57.7% to 61.3%. In addition, as of the end of 2021, foreign institutions held 1.09 trillion yuan of policy financial bonds, an increase of about 165.2 billion yuan from the end of 2020.
Wang Chunying, deputy director of the State Administration of Foreign Exchange, once introduced that since the outbreak of the new crown pneumonia epidemic, China’s high-credit-grade bond assets such as government bonds and policy financial bonds have gradually been favored by global investors.
The participation of more foreign central bank institutions to a certain extent explains why interest rate products such as treasury bonds are sought after by international investors. As of the end of November 2021, a total of 76 foreign central bank institutions have entered the interbank bond market, an increase of 5 compared with the end of December 2020.
According to industry insiders, foreign central banks and sovereign wealth fund institutions account for a large proportion of foreign investors in the bond market at present, and these institutions tend to invest in the long-term. In terms of investment targets, bonds issued by government departments are mainly selected, reflecting the demands of foreign investors to diversify their asset allocation and seek stable returns.
The rhythm of holdings is more stable
Why do foreign institutions favor RMB bonds? In the final analysis, it is the long-term stable development of China’s economy and the steady expansion of China’s financial sector that have enhanced the attractiveness of RMB assets.
Wang Chunying said that foreign investors continue to increase their holdings of RMB bonds, which reflects the results of the opening up of the domestic bond market and investors’ confidence in my country’s economic development prospects.
Zhu Haibin, chief economist of JPMorgan Chase China, believes that the strong performance of China’s economy provides a stable internal foundation for foreign investors to increase their holdings of domestic bonds. At the same time, the high yield of Chinese bonds and the outstanding resilience of the RMB exchange rate have enhanced the attractiveness of Chinese bonds.
The enhancement of the hedging attributes of RMB assets constitutes a new “plus point”.FranceIndustrial BankYao Wei, chief economist for Asia-Pacific and China, said that the correlation between China’s bond market and overseas markets is low, and international investors are increasingly interested in investing in Chinese bonds out of consideration for diversifying asset allocation risks.
Looking ahead, the momentum of international investors to increase their holdings of Chinese bonds is expected to continue. Wang Chunying said that China’s bond market has a large scale and good liquidity, but the proportion of foreign capital is still relatively low, and there is a lot of room for foreign investment to allocate RMB bonds in the future.
With the increase in the holding scale and changes in the internal and external environment, the increase in foreign investment will be more stable in the future. Wang Chunying previously pointed out that the rapid growth in the scale of net foreign investment holdings in the first half of 2021 was achieved under the background of the epidemic, the stable recovery of China’s economy and the ultra-loose external liquidity, which is a special performance in a special period. With the recovery of the global economy and the return of external liquidity and interest rates to normal, foreign bond purchases will return to the pre-pandemic normal, and the pace of foreign holdings of domestic bonds will be more stable.
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Responsible editor: Li Tong
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