BEIJING – American investors are among the many foreigners who want to take advantage of China, especially the bond market.
A clear area of focus is government bonds, where the Chinese 10-year-old has a return of more than 3.2%. In contrast, the latest rise in US interest rates has pushed 10-year Treasury yields to just 1.7%. That big difference provides investors in Chinese government bonds with a significantly higher return.
“US investors remain very interested in investing in (the) Chinese market,” Tao Wang, chief of economics in Asia and China economist at UBS, said Thursday during a webinar with the Institute of International Finance. “Especially from a bond market perspective, there is a structural rise in interest rates.”
While “China offers high and stable returns,” she noted that other countries are still taking measures to boost growth, which have resulted in negative returns for many bonds. That means bond buyers have to pay the issuer when the bond matures, rather than making money from it.
According to Reuters, there was no specific data for US investors, but investors outside of mainland China owned about 3.5% of existing yuan-denominated bonds at the end of February. In particular, foreign holdings of Chinese government bonds amounted to about 10.6% of issuance last month, Reuters said.
According to data from Wind Information, foreign holdings of Chinese government bonds nearly doubled to more than 2 trillion yuan ($ 307.7 billion) in just two years.
The increased interest is as Chinese bonds were added to major investment indices tracked by global investors, leading to billions of dollars in Chinese debt purchases.
These purchases have surged for JP Morgan Asset Management’s China Bond Opportunities Fund in recent months, said Jason Pang, the firm’s Asia-based fixed income portfolio manager.
“There is no clear reason why we should not stay separate from this particular market,” he said. Pang pointed out that the Chinese economy is ahead of other countries when it comes to recovering from the coronavirus pandemic, saying the chances of “a much bigger sell-off in China are much lower than in the rest of the world.”
While international interest in the Chinese bond market has increased, Pang said much of the investment is still in an “experiential phase” as foreign investors need to learn even more about the mainland Chinese market.