M&G Investments Comments on China Bond Connect

The China – Hong Kong bond connect is another gradual step that China is taking in opening up its domestic bond market for foreign investors.

Bond connect will have some operational advantages versus investing directly onshore in the sense that it will not require the investor to have a local custodian or accounts and it will not require the investor to be subject to quotas or reveal how much it intends to invest beforehand.

“I would expect that foreign investors would initially venture into government bonds as opposed to state owned companies (SOEs) or corporate bonds given valuations, liquidity and the fact that this is still an incipient market. As such, the ratings will not be as a key driver for investment, but rather one’s views on the Remimbi, capital flows into and out of China, monetary policy and potential for inclusion of Renminbi-denominated government bonds in major global bond indices.

Claudia Calich – portfolio manager M&G Emerging Markets Bond Fund – M&G Investments