According to the data released by the China foreign exchange trading center on May 18, foreign institutional investors reached a total of 1020.2 billion yuan of cash bond transactions in April, an increase of 13% year-on-year and a decrease of 17% month on month. The trading volume accounted for about 5% of the total trading volume of the cash bond market in the same period. According to the data from the Shanghai headquarters of the people’s Bank of China, overseas institutions showed a trend of reducing their holdings of Chinese bonds in April.
According to the analysis of insiders, in the long run, China has a high return on assets and decentralized investment value, which has a strong attraction to international investors. Short term fluctuations do not change the long-term trend of foreign capital increasing its holdings of Chinese assets.
more than 1000 overseas institutions enter the market
Overseas institutions have a strong desire to participate in China’s bond market. According to the data released by the Shanghai headquarters of the people’s Bank of China on May 17, two new foreign institutions entered the inter-bank bond market in April. By the end of April, 1035 overseas institutions had entered the market. Among them, 514 entered the market through direct investment channels, 749 entered the market through “bond link” channels, and 228 entered the market through two channels at the same time.
In terms of trading volume, overseas institutions are more active in China’s bond trading. In April, foreign institutional investors bought bonds of 487.2 billion yuan and sold bonds of 533 billion yuan, with a net sales of 45.9 billion yuan.
In terms of the total amount of Chinese bonds held by overseas institutions, according to the data of the Shanghai headquarters of the people’s Bank of China, as of the end of April, overseas institutions held 3.77 trillion yuan of bonds in the inter-bank market, accounting for about 3.2% of the total custody of the inter-bank bond market. Compared with March, overseas institutions reduced their holdings of inter-bank market bonds by 110 billion yuan in April.
From the perspective of securities, as of the end of April, the main custody securities of overseas institutions were treasury bonds, with a custody volume of 2.39 trillion yuan, accounting for 63.4%; The second is policy financial bonds, with a custody amount of 0.97 trillion yuan, accounting for 25.8%.
Analysts believe that Treasury bonds are still the most popular bond varieties of overseas institutions, indicating that overseas institutions have confidence in China’s economic fundamentals.
According to the monetary policy implementation report of the people’s Bank of China in the first quarter of 2022, the monetary policy shift of major developed economies has accelerated since 2022. Under this background, the volatility of global stock, bond and foreign exchange markets has increased significantly, the cross-border capital flow is more unstable, and the spillover effect is emerging.
According to the data, affected by the tightening monetary policy of major developed economies, the yield of overseas treasury bonds rose significantly, and the yield of 10-year US bonds once exceeded 3.10%.
Citic Securities Company Limited(600030) co chief economist Mingming analyzed that generally speaking, the larger the interest rate difference between China and the United States, the faster the RMB appreciation, and the larger the scale of foreign capital’s increased holdings of domestic bonds.
Wang Chunying, deputy director of the State Administration of foreign exchange and spokesman, said at the press conference on foreign exchange revenue and expenditure data in the first quarter held by the Information Office of the State Council that reviewing the opening and development process of China’s bond market, interest rate spread is not the only factor or even the most important factor affecting foreign capital to buy bonds in China.
foreign investment in China’s bond market remains unchanged
“The biggest pressure on foreign investors to reduce their holdings of RMB bonds has passed,” Mingming said According to the analysis of insiders, as the market digests some short-term factors, the investment of overseas institutions in China’s capital market will return to a steady state. Chinese bonds have relatively high investment value in the world, and the increase of Chinese bonds held by overseas institutions is supported.
First, compared with developed economies, China’s real return on assets is higher. Chen Yulu, vice president of the people’s Bank of China, said recently that this is determined by China’s potential economic growth and natural interest rates, and a higher return on investment is still an important attraction of China’s financial market.
Secondly, the independent performance of China’s bond market has decentralized investment value. Wang Chunying said that China’s economic and policy cycles are not synchronized with major developed economies such as the United States, which helps RMB assets become an important category of assets with an independent market. From 2019 to 2021, the correlation between China’s local currency treasury bond index and US Treasury bond index is only 0.2, which can be said to be basically irrelevant. Therefore, RMB treasury bonds provide valuable decentralized investment value for global investors.
In addition, China’s financial market is an important target of diversified asset allocation. As of the end of March, the scale of overseas central banks’ investment in Chinese bonds accounted for 58% of the total holdings of foreign capital, which was the main force to increase their holdings of domestic bonds. Earlier, the Executive Board of the International Monetary Fund decided to maintain the current composition of the special drawing right (SDR) basket of currencies and increase the weight of the RMB from 10.92% to 12.28%.
Finally, the independent and stable performance of China’s bond market compared with overseas bond markets since this year shows that investors have confidence in the long-term, stable and healthy development of China’s economy. Xu Hongcai, Vice Minister of finance, analyzed that compared with the recent increased volatility of the Global Treasury bond market, the operation of China’s treasury bond market is relatively stable. The main reason is that the rise of China’s consumer price index has been relatively mild since this year, which is conducive to the stability of treasury bond yields; We strengthened the implementation of prudent monetary policy, creating a better environment for the stable yield of treasury bonds. In addition, the investor structure of China’s treasury bonds is also relatively stable.
Wang Chunying pointed out that in the medium and long term, China’s financial market will continue to open to the outside world, global investors also need to allocate Chinese assets, and the long-term trend of foreign investment in China’s bond market will not change.
