JP Morgan inclusion of China bonds benefits Chinese market, overseas investors

NEW YORK - US investment strategists believe JP Morgan's decision to include liquid China Government Bonds (CGBs) in its series of Government Bond Index-Emerging Markets (GBI-EM) indices would benefit both China's financial market and overseas investors.

"The JP Morgan decision highlights the reforms that occurred in providing access into the interbank bond market by the People's Bank of China, China Securities Regulatory Commission and State Administration of Foreign Exchange for foreign investors," Brendan Ahern, chief investment officer at New York-based Krane Funds Advisors, told Xinhua in a recent interview.

Praising that the opening of China's financial market has been "very robust", Ahern believes the integration of China's equity and fixed-income markets into global benchmarks has a far-reaching impact and China will "benefit in the long run" from investors' insights.

Ahern's perspective was echoed by Lucy Qiu, strategist at UBS Global Wealth Management's Chief Investment Office, who told Xinhua that increased foreign inflows should serve to institutionalize China's onshore market and lead to lower volatility and more focus on fundamentals.

"The Chinese bond market offers interesting diversification benefits for international investors," she said, noting that China's "local interest rates tend to be higher than in most established markets, allowing international investors to earn a positive interest rate carry and some buffer against possible exchange rate losses."

Bank of America Merrill Lynch Global Research analysts estimate a potential 20 billion US dollars of inflows would be translated to onshore China bonds over the period of inclusion between Feb 28, 2020 and Nov 30, 2020, implying an average of 2 billion dollars of inflows per month.

"The inclusion of China bonds to JP Morgan's benchmark indices represents a step forward in China's renminbi internationalization project," analysts with BofA Merrill Lynch Global Research said in a research note.

"Global bond managers, much like their equity counterparts, will need to have a China opinion," said Ahern.