Foreign investment's enthusiasm for allocating RMB assets continues to rise
2024-06-03
As of the end of April, a total of 1129 overseas institutional entities have entered the interbank bond market; Overseas institutions hold RMB 4.05 trillion in interbank market bonds, accounting for approximately 2.9% of the total custody of the interbank bond market. According to data from the State Administration of Foreign Exchange, in April, foreign investors net purchased domestic bonds and stocks of RMB 124.7 billion and RMB 45.1 billion, respectively. This is the eighth consecutive month that foreign institutional investors have increased their holdings of Chinese bonds, indicating that foreign investors continue to be enthusiastic about allocating RMB assets. At the same time, the types of foreign bond investments in China are becoming more diverse. Xu Zhaoting, General Manager of China Investment Banking Department of Deutsche Bank, observed that the proportion of domestic bond investment, except for treasury bond 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. The interbank market transaction volume of overseas institutions has also significantly increased, with the daily average transaction volume increasing from 61.7 billion yuan in March 2023 to 88.5 billion yuan in March 2024. Lian Ping, President of Guangkai Chief Industrial Research Institute, stated that in 2024, there will be a series of changes in domestic and foreign macroeconomics and policies, which will increase the number of factors favorable to the positive operation of the bond market. Under the condition of vigorously promoting macro policies, domestic demand will be further released, bringing more investment attraction to China's securities market, and China's bond market will become an important choice for foreign investors to invest. "Since September last year, overseas institutions have increased their holdings of domestic bonds for 8 consecutive months. In April, overseas institutions increased their holdings of domestic bonds by over 100 billion yuan, indicating that the attractiveness of RMB assets has significantly increased, and the value of RMB bond allocation has become prominent, boosted by an increase in positive internal and external factors." Yu Lifeng, Senior Analyst at the Research and Development Department of Oriental Jincheng, said. According to Yu Lifeng's analysis, firstly, the safety of RMB assets is relatively high, and it is favored by overseas investors as a safe haven asset; Secondly, the domestic monetary policy remains stable, and investors generally believe that there is room for an increase in the price of RMB bonds in the future; Thirdly, recent economic data shows that the domestic economy has maintained a rebound momentum, while some overseas economies have weakened, further driving foreign investment to increase the allocation of RMB bonds. A higher level of opening up to the outside world has provided assistance for foreign investment to enter the Chinese market. Recently, the People's Bank of China, the Hong Kong Securities Regulatory Commission, and the Hong Kong Monetary Authority jointly issued a document supporting the further optimization of the "Swap Connect" mechanism, guiding financial market infrastructure institutions in the two regions to launch standardized interest rate swap products that are in line with international standards, improving the supporting functions of duration management, and implementing other system optimization and fee preferential measures. There is still significant room for foreign investment to increase its holdings of RMB bonds. Experts believe that with the change of domestic and international macro policies and economic operation, the further internationalization of the RMB, the basic stability of the RMB exchange rate and the expansion of the opening of the bond market, China's bond market will become increasingly attractive to international investors. Xu Zhaoting said that although the expectations of the Federal Reserve for interest rate cuts fluctuated significantly, and major overseas economies showed an inflation stickiness that exceeded expectations, overseas economic data has now shown signs of weakness, the pressure of RMB devaluation has gradually weakened, and China's monetary policy will usher in greater space, which is expected to drive down short-term yields, superimpose China's capital cost advantages, and foreign investors may increase their investment in China's bond market. Lian Ping said that so far, the degree of foreign investors' participation in China's bond market is still much lower than that of mature markets and important emerging economies. As one of the most important economies, China has a relatively low level of participation from foreign investors in the bond market, which has great potential for development and growth in the future. The safe haven nature of RMB bonds also further enhances their attractiveness to foreign investment. Lian Ping believes that RMB bonds, as assets with relatively high yields, good stability, and safety, can enrich asset selection, optimize effective investment frontiers, diversify investment asset risks, reduce overall volatility of asset portfolios, and thus become an irreplaceable important category in global asset allocation. Turning to the expectations and prospects for the improvement and further opening of the bond market system, Xu Zhaoting believes that foreign investors have a strong interest in participating in more diversified interest rate hedging instruments, such as treasury bond futures. At present, the domestic treasury bond futures market has a complete trading system, rich trading products and sufficient liquidity. If domestic treasury bond bond futures products can be opened to foreign investors and more sophisticated hedging tools can be provided, it is bound to further enhance foreign investors' enthusiasm for trading in the domestic bond market. (Lai Xin She)
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