China Unicom (Hong Kong) Ltd (CHU) Cut to "Hold" at BidaskClub

Tammy Harvey
July 4, 2017

The Agricultural Development Bank of China, a major policy bank, saw its first bond issue under the mainland-Hong Kong bond connect program oversubscribed on Monday.

Overseas investors should register the bonds they purchase under qualified overseas trusteeship bodies, which have accounts in mainland counterparts, according to rules issued earlier by the PBOC.

Initially, Chinese bonds can be bought by banks, insurers and fund managers via Hong Kong.

The bank said it expected foreign holdings of China onshore bonds to increase by 100 billion yuan in the second half to 950 billion yuan.

China approved a bond connect program between the mainland and Hong Kong in mid-May, allowing investors from both sides to trade bonds on each other's inter-bank markets.

A long-awaited scheme enabling foreign investors to buy and sell Chinese bonds has been launched.

The growing Chinese bond market has been virtually out of reach for foreign investors, who now hold less than 1.5% of bonds issued in China, according to estimates by Bloomberg.

As reported by the South China Morning Post, Yunho Song, Senior Advisor to the president of Ping An Securities, said: "In comparison with previous rules on foreign investors" investment in the Chinese bond market, Bond Connect has significantly abridged the procedures for foreign investors who cannot only "click' and enter the Chinese bond market but also purchase directly in foreign currencies". For a start, there is little evidence that market access has been a binding constraint on foreign investment.

Deutsche Bank said it had executed its first two transactions leveraging the initiative, as did HSBC and BNP Paribas as market makers.

"Despite China being the world's third-largest bond market, overseas investors now own less than two per cent of it", said Helen Wong, chief executive for Greater China at HSBC.

"In the next 12 months, we expect that northbound inflows to the onshore bond market will grow gradually".

The scheme will also see deals coming through the primary market.

"Over the previous year China has been normalizing policy and we've seen the currency stabilize and bond yields start to become more attractive".

"The China - Hong Kong bond connect is another gradual step that China is taking in opening up its domestic bond market for foreign investors", Calich says.

The project represents China's latest attempt to expand overseas access to its markets, having already established a new trading link between Hong Kong and Shanghai in 2014, and a further link between Hong Kong and Shenzhen in late 2016.

Other reports by Ligue1talk

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