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July 4, 2017

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US$1b flows in as bond connect market kicks off

TURNOVER under the milestone bond connect between China’s mainland and Hong Kong hit 7 billion yuan (US$1.1 billion) on its opening day yesterday as overseas investors took advantage of the access to the US$9 trillion domestic debt market.

About 70 overseas financial institutions traded with 19 onshore banks and securities brokerages on the northbound flow of the bond connect.

Overseas investors bought a total 4.9 billion yuan (US$ 721.4 million) of bonds in 128 deals.

Running on a trial basis, the program allows qualified overseas investors to invest in the mainland interbank market via Hong Kong using either the yuan or other currencies.

Qualified investors include foreign central banks, sovereign wealth funds, international financial organizations, Qualified Foreign Institutional Investors, RMB Qualified Foreign Institutional Investors, and financial agencies including commercial banks, insurance companies, securities brokerage houses, and fund management companies.

The Macau unit of the Bank of Communications yesterday completed the first transaction under the program. Standard Chartered Bank, which supported several of its clients in Hong Kong in investing through the program yesterday, hailed the connect as a “significant milestone” for China’s opening up of its onshore capital markets.

“The scheme not only provides an additional channel for international investors to tap into the world’s third largest bond market, but also reinforces Hong Kong’s strategic importance as the gateway between China and the rest of the world,” said Benjamin Hung, CEO for Standard Chartered China and North Asia.

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.

Standard Chartered was also mandated as Special Underwriter in China and a Joint Global Coordinator in Hong Kong for Agricultural Development Bank of China’s 16 billion yuan bond issuance, the first primary offer out of the Bond Connect scheme.

Ivan Chung, associate managing director at Moody’s, said the program would boost yuan internationalization as it enlarges the pool of investable yuan-denominated assets for foreign investors.

“There will be more significant growth in northbound flows as we expect more international bond indices will include or increase allocations in Chinese onshore bonds one year after the implementation of Bond Connect,” Chung said.


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