Foreign Investors to Own Larger Share of China's Interbank Bond Mart

KUALA LUMPUR, Feb 24 (Bernama) -- Foreign investors will start to own larger share of China's 55 trillion renminbi (RMB) interbank bond market with efforts to make RMB an international currency. In a statement Friday, HSBC Bank Malaysia Bhd said, central banks will likely adjust their holdings over the coming years to have more RMB denominated assets, increasing the demand for onshore bonds. In October 2016, the International Monetary Fund added RMB to the basket of currencies forming the Special Drawing Rights (SDRs), effectively granting it the status of global reserve currency. "Higher yields, SDR inclusion and a new route to invest in one of the world's fastest-growing economies are factors suggesting greater foreign participation in Chinese bonds," HSBC said. HSBC said the proportion of onshore government bond market owned by foreigners was expected to increase from the current two per cent to 10 per cent over the next two years, equating to some US$100 billion (US$1 = RM4.44) inflows into the market. "Major global fixed income index providers have started reviewing China's inter-bank bond market (CIBM) inclusion in the opening of the world's third largest bond market," HSBC said. "By unlocking the world's third largest bond market to global financial institutions, China has created an opportunity to diversify into an asset offering higher yield than most developed market bonds," HSBC said. It said China, in late November 2015, granted Malaysia a 50 billion renminbi quota under the RMB Qualified Foreign Institutional Investor System (RQFII) programme, emphasising financial commitment between both countries and enabling Malaysian institutional investors to access China's capital market. The People's Bank of China launched a pilot programme in 2010 allowing limited foreign institutions to invest in China's CIBM -- primarily foreign central banks, monetary authorities, RMB clearing banks and settlement banks in Hong Kong and Macau, it said. The bank said this followed further relaxation to allow Qualified Foreign Institutional Investor System (QFII) or RQFII to participate in CIBM for 2012-13. "China's financial system, despite its size and being an emerging economy, has yet to reach the sophistication level seen in more matured markets," it said. However, there were widespread concerns over the growth of corporate debts since the global financial crisis, pushing the corporate debt-to-gross domestic product ratio to 169 per cent, it said. "State-owned companies are at the forefront of this trend and the long-anticipated reform for this sector has yet to materialise," HSBC said. HSBC said a matured capital market would help address these issues and enhance the country's ability to allocate and price capital in ways that would strengthen the economy and provide attractive yield opportunities. HSBC Malaysia will be hosting the Asian & RMB forum in Kuala Lumpur on Feb 27, 2017. -- BERNAMA