Our reporter Xie Ruolin
Trainee reporter Mao Yirong
The enthusiasm of foreign institutions to allocate RMB assets continued to rise. According to the data of the State Administration of Foreign Exchange, the net purchases of domestic bonds and stocks by foreign investors in April were 124.7 billion yuan and 45.1 billion yuan, respectively. So far, foreign institutional investors have increased their holdings of Chinese bonds for eight consecutive months.
At the same time of "buy buy" by foreign institutions, the main participants in China's bond market are also expanding. According to the data from the Shanghai headquarters of the People's Bank of China, as of the end of April, a total of 1129 overseas institutions had entered the inter-bank bond market.
This shows that the attraction of RMB assets is increasing, and China's bond market shows a strong "magnetic attraction".
Foreign investors
Continuous increase in China's bond market
According to the data released by the Shanghai headquarters of the People's Bank of China, as of the end of April, overseas institutions held 4.05 trillion yuan of bonds in the inter-bank market, accounting for 2.9% of the total custody of the inter-bank bond market.
The types of foreign bond investment in China tend to be diversified, and the trading volume has increased significantly. Xu Zhaoting, General Manager of China Investment Banking Department of Deutsche Bank, observed that the proportion of domestic bond investment other than national bonds and policy bank bonds increased from 12% in March 2023 to 23% in March 2024, and the holdings increased significantly from 372.4 billion yuan to 920 billion yuan. At the same time, the trading volume of overseas institutions in the inter-bank market increased significantly, with the average daily trading volume rising from 61.7 billion yuan in March 2023 to 88.5 billion yuan in March 2024. The attraction of China's bond market to foreign capital has risen rapidly.
"Since September last year, overseas institutions have increased their holdings of domestic bonds for eight consecutive months. In April, overseas institutions increased their holdings of domestic bonds by more than 100 billion yuan, which shows that the attractiveness of RMB assets has been significantly enhanced and the value of RMB bond allocation has been highlighted, boosted by the increase of internal and external positive factors." Yu Lifeng, senior analyst of Oriental Jincheng Research and Development Department, told Securities Daily The reporter said.
Yu Lifeng further analyzed that, first, the security of RMB assets is relatively high, which is favored by foreign investors as a "safe haven" asset; Second, the domestic monetary policy remains loose, and investors generally believe that there is room for RMB bond prices to rise in the future; Third, recent economic data show that the domestic economy has maintained the momentum of recovery, while the data of some overseas economies have weakened, and the RMB has potential appreciation space, further driving foreign capital to increase the allocation of RMB bonds.
Foreign capital increased its holdings of RMB bonds
The space is still large
Since the mainland and Hong Kong interest rate swap market interconnection cooperation (hereinafter referred to as "swap link") was officially launched on May 15, 2023, the overall operation has been stable and the number of participants has increased steadily. According to the data of the Hong Kong Securities Regulatory Commission, by the end of April 2024, 20 domestic quotation companies and 58 overseas investors had concluded more than 3600 RMB interest rate swap transactions, with a total nominal principal of about 1.77 trillion yuan. The average daily turnover calculated on a monthly basis has tripled in the past year, from about 3 billion yuan in the first month of the launch to more than 12 billion yuan in April 2024.
In the near future, the Interchange will be further upgraded. On May 13, the People's Bank of China, the Hong Kong Securities Regulatory Commission and the Hong Kong Monetary Authority jointly announced that they would support the further optimization of the "swap link" mechanism arrangement, including the new "swap link" contract compression function, the new historical value contract and IMM (International Monetary Market) contract, and the extension of the implementation period for full reduction and exemption of transaction fees.
"This will better meet the market entry trading needs of overseas asset management institutions, facilitate foreign investors to participate in the mainland inter-bank interest rate swap market, improve market vitality, help the RMB interest rate swap market further integrate with the international market, and help promote the long-term development of Hong Kong and the mainland financial markets, and promote the internationalization of the RMB," the Hong Kong Stock Exchange said.
In the future, there is still much room for foreign institutions to increase their holdings of RMB bonds. With the further improvement of China's importance in the global economy, the continuous improvement of financial infrastructure and the further opening of the bond market, it is a general trend for foreign capital to continuously increase the allocation ratio of RMB bonds.
Yu Lifeng said that at present, RMB bonds are still in the initial stage of foreign capital inflow. In the future, with the further improvement of the domestic credit bond market infrastructure, the variety of foreign held domestic bonds will be further enriched and the scale will continue to expand.
Referring to the expectations for the improvement and further opening of the bond market system, Yu Lifeng believed that in the future, the domestic bond market will continue to steadily promote institutional opening, expand international cooperation, and continue to promote the interconnection of domestic and foreign bond market infrastructure.
"Foreign investors have a strong interest in participating in more diversified interest rate hedging instruments, such as treasury bond futures." Xu Zhaoting said that the Hong Kong Stock Exchange may launch treasury bond futures products in the second half of this year to meet the trading needs of foreign investors for treasury bond futures.
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