StanChart: Rising interest in China's bond market

Added 4th July 2016

Tier one global asset managers are applying to access the China Interbank Bond Market, said Margaret Harwood-Jones, Standard Chartered head of investors and intermediaries based in Singapore.

StanChart: Rising interest in China's bond market

Asset managers have already applied to gain access to China’s Interbank Bond Market (CIBM), which has recently opened access to foreign investors.

In May, authorities announced new rules that expand access to overseas institutional investors without quota restriction. 

"The actual applications are coming from major or tier one and tier two global managers – across their fund vehicles in the US, Europe and Asia," Margaret Harwood-Jones, Standard Chartered head of investors and intermediaries in Singapore, told FSA.

Overall interest, interest is from institutional investors, asset managers, hedge funds and retail brokers.

"The majority of the institutional investors [including their fund managers] are existing China players, whilst the interest from [hedge funds and others] is newer money coming into China."

The bank forecasts a four-fold increase in the size of China’s asset management industry to $15.7trn by 2020

QFII strategy

The qualified foreign institutional investor programme (QFII) and the renminbi qualified foreign investor programme (RQFII) have been the key channels for foreign institutional investors to trade A-shares and onshore bonds. They come with designated quota, while the CIBM imposes no quotas. 

According to a Standard Chartered whitepaper released last month, which included a survey of 900 global market participants and industry players, about one-third would consider accessing the CIBM.

Beyond the survey, Harwood-Jones added that about 70% of investors the bank has spoken to are looking at the CIBM.

"A number of existing QFII holders are rebalancing their portfolios so that QFII will be used for equities only and CIBM access will be for fixed income investment," she added.

Both HSBC GAM and BNPP Investment Partners told FSA earlier that they have high hopes for the CIBM.

However, respondents considering using QFII, RQFII and the Stock Connect is higher at 36%, 40%, and 69% respectively, according to the survey.

“During liberalisation of China's market, the first announcement of any initiative is light on the details. The concept is attractive but it will take time to adopt."

“For some clients, the older mechanisms, which are understood and which managers are compfortable using, are still in play,” she said.

China AM to grow 4x

In the same survey by the bank, 38% of respondents believed the fund management joint ventures (with domestic Chinese partners) will remain essential or important, versus 35% holding the opposite view.

Overall, “clients are less inclined to adopt a wait-and-see strategy and much clearer in terms of the route they would take to develop the onshore business in China", Harwood-Jones said. Usually, it means more than one strategy at the same time.

The CIBM, along with the Stock Connect programme and other initiatives to open China's financial industry to foreign participation will support strong asset growth in China.

By 2020, the bank forecasts a four-fold increase in the size of China’s asset management industry, including mutual funds, pension funds and wealth management products, to RMB104trn ($15.7trn) from RMB27.6trn at the end of 2015. 

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