Mar 12, 2019
March 21, 2019
China’s efforts to further liberalize its economy in order to attract more foreign investors will receive a welcome boost in April, when RMB-denominated government and policy bank securities will begin to be included in the Bloomberg Barclays Global Aggregate Index and phased in over the next 20 months.
Valued at over $12 trillion, China’s domestic bond market is the third largest in the world and is set to become even larger. Currently, the value of China’s bond market stands at around 90% to GDP, while in comparison other leading bond markets stand at up to 200% – 250% of GDP.
Despite its massive size and potential, China still remains one of the least penetrated bond markets by global investors. However, this is starting to change. According to the People’s Bank of China, at the end of 2018, foreign investors made up 2.3% of the market in terms of value, up from 1.6% from the previous year. Over the same period, the number of overseas institutional investors participating in China’s inter-bank bond market (CIBM) grew from 806 to 1,186.
Against this backdrop, J.P. Morgan has been an active participant in China’s bond market since 2004, when the firm started to trade in the CIBM. Today, J.P. Morgan is a Chinese Government Bond Underwriter, an Official Bond Connect Market Maker as well as a Type-A Bond Settlement Agent in CIBM.
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Over the past few years, China has introduced landmark reforms to open up its bond market by removing restrictions and launching initiatives such as the Bond Connect program - which enables investors from overseas and mainland China to trade in each other's bond markets - and by establishing CIBM Direct, a platform that allows international investors’ access to invest in CIBM through their onshore bond settlement agent.
In addition, China’s central bank has also eased restrictions on credit-ratings companies, and the government has instructed officials to quickly unify the market around trading venues and regulators. Other important developments include establishing a settlement process consistent with other global markets.
In 2016, as a result of the country’s measures to enhance accessibility for foreign investors and further internationalize the RMB, China was placed on the Index Watch for inclusion in the J.P. Morgan Emerging Markets Government Bond Index Global Diversified (GBI-EM GD). The annual Index governance meetings will take place over the summer to survey investor sentiment.
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