gGlobal fixed income investors are turning to Chinese bonds after a temporary pullback, targeting debt outside of sovereign debt for more attractive yields and returns. Investors can also look at exchange-traded funds linked to Chinese bonds to gain exposure to this market.
Bonds issued by Chinese “political banks”, which include public funds for areas such as trade, infrastructure and agriculture, are gaining more and more attention, Nikkei Asia reports.
“Foreign investors are now comfortable with Chinese government bonds and are now moving down the curve to steer bank bonds. It’s a shift in risk appetite, ”Jason Pang, a Hong Kong-based portfolio manager at JP Morgan Asset Management, told Nikkei Asia.
Global investors are expected to increase their exposure to the Chinese bond market as Beijing opens up its markets and the region adds to more global bond indices. For example, China is expected to be included in the FTSE World Government Bond Index and could attract up to $ 150 billion in passive financial flows, analysts say.
“We have helped many foreign investors apply for and obtain QFII licenses, including several leading global hedge fund and private fund management companies with significant investments or plans,” said Vicky Tsai, Head of Citi China Securities Services. CNBC, referring to the increased demand for licenses from Qualified Foreign Institutional Investors (QFIIs).
Foreign institutional investors were particularly interested in the Chinese bond markets. According to Natixis data, the foreign share of the mainland Chinese bond market reached 3.44% in April, up from 3.2% in December. Foreign investors added net 58 billion yuan, or $ 9 billion, to mainland Chinese bonds in April, canceling more than net repayments of 9 billion yuan in March.
Investors can access Chinese debt markets through strategies such as KraneShares E Fund China Commercial Paper ETF (NYSEArca: KCNY). The ETF tracks a diversified basket of investment grade on-shore renminbi denominated commercial paper issued by sovereign, quasi-sovereign and corporate issuers in the People’s Republic of China and traded on the interbank bond market. The Fund’s commercial paper is of good quality and has a remaining term to final maturity of not more than one year and not less than one month.
In addition, the KraneShares CCBS China Corporate High Yield Bond USD Index ETF (KCCB) may provide exposure to high yielding US dollar denominated debt securities issued by Chinese companies.
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