New research highlights growing importance of China’s fixed income market

New research with 150 European institutional investors and wealth managers who have a combined AUM of USD292.8 billion, highlights the growing importance of China’s fixed income market, with 63 per cent expecting foreign investment into the asset class to increase in Q1 2021, compared to Q4 of 2020. 

The study was carried out by NTree International Ltd which has expertise in China’s asset classes – bonds, equities and commodities, and the distribution of China-focused ETFs in Europe. International investors currently own about 3 per cent of China’s onshore bonds. The research reveals that 17 per cent of institutional investors predict that this will increase to 5 per cent this year, with 35 per cent and 32 per cent expecting it to reach this in 2022 and 2023 respectively.  

Three quarters (76 per cent) of respondents agreed with the view that the expected increase in foreign investment in the Chinese fixed income market this year will be driven by monetary and fiscal policies in developed markets in relation to Covid-19, the continued growth in negative yields in Western fixed income markets and the fact that major bond indices are increasingly adding Chinese debt to their compositions.  

The majority (80 per cent) also agreed that there will be an improvement in liquidity, ease of trading and market access in the Chinese bond market over the next three years as it catches up with more developed markets.  

Timothy Harvey, CEO at NTree, comments: “The Chinese fixed income market is becoming more attractive as it matures and as investors look to new sources of yields. The outlook is very positive for the asset class with significant inflows of foreign investment predicted.”  

When it comes to investing in Chinese funds, 77 per cent of institutional investors expect China-based investment teams to have the edge over those based in the West.