FTSE Russell China Bond Research Report Q1 2019

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Includes: CBON, CHN, CN, CXSE, FCA, FLCH, FXP, GXC, KCNY, KGRN, PGJ, TDF, WCHN, XPP, YANG, YINN, YXI
by: FTSE Russell
Summary

Even though China's macro outlook could be impacting appetite for RMB debt, the allocation of Chinese government bonds by foreign investors is increasing.

But in the corporate bond space, foreign investors are not too keen to increase allocations, particularly due to lack of international credit ratings as well as increasing instances of defaults.

While China's debt market has grown rapidly for the last 10 years with an annual growth rate of 23%, it still has more much room to grow relative to the country’s GDP.

One strong area in recent months is China's relatively young convertible bond market.

Highlights from the May report:

  • Total holdings of Chinese bonds by offshore investors rose in Q1 of 2019. Offshore investors held 1.76 trillion RMB (US$263 billion) worth of bonds at the end of March, according to data released by Shanghai Clearing House and China Central Depository and Clearing Co, marking a 34.3 billion RMB (US$5.1 billion USD) rise compared to end-December 2018.
  • Some of China’s largest companies have defaulted on their debt in Q1. Three large Chinese borrowers - Qinghai Provincial Investment Group Co., China Minsheng Investment Group Corp. and Beijing Orient Landscape & Environment Co. - missed repayment deadlines.
  • Against this backdrop, interest in China’s small convertible bond market is growing - driven for the desire among investors for higher returns. Citic Bank Corp’s offering in March saw orders eclipse supply by 5,500 times, according to Bloomberg. Convertible bond issuers have raised US$13 billion via convertible bonds in 2019, more than four times the value of Chinese IPOs during the same time period.

Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.