Debt market

SURVEY: We want more Chinese debt, investors demand

Fixed income investors are keen to increase their exposure to onshore Chinese corporate bonds, exclusive research reveals.

Chinese treasurers and CFOs looking to raise debt should be pleasantly surprised to find out that foreign investors are clamouring to get hold of it, despite reservations about the infrastructure supporting the relatively new market.

According to new findings by FinanceAsia, 45% of fixed income institutional investors located outside of China plan to increase their exposure to China-issued debt in the next 12 months. In stark contrast, only 1% admitted they intend to reduce their exposure, while the remainder of investors with exposure to the market plan to maintain their current levels.

A total of 178 fixed income investors were surveyed for China Fixed Income Investor Survey 2019, with the majority (57%) were located in Asia, 21% located in North America, 19% in Europe and remainder coming from Australia*.

Of those 178, just over one third (36.5%) already have existing exposure to Chinese onshore debt, while 56.7% said they were seriously considering adding it to their portfolio. Of those with investments already, a large minority (43.8%) have between 6% to 10% of their overall portfolio dedicated to China debt.

In what is particularly good news for Chinese corporate treasurers and CFOs, four fifths of investors already have exposure to corporate debt (as opposed to government-related debt or policy bank bonds). Given well-known anxiety about transparency of the corporate debt market in China, these results may come as a surprise to some observers.

In terms of accessing to the Chinese onshore debt market, Bond Connect is by far and away the most popular mechanism. The mutual market access scheme presently allows overseas investors to tap the debt markets via Hong Kong.    

Top investor concerns

For issuers keen to know what may prevent more investors moving into the sector, we also asked them what their top concerns were for the market overall. FinanceAsia provided ten options, ranging from issues related to market transparency to political risk. Although most generated substantial responses, the top five concerns comprise: Liquidity, creditor rights/investor protection, counterparty risk, lack of ratings differentiation, and lack of appropriate hedging instruments.

The issues were echoed by debt investors who attended the FinanceAsia China Fixed Income Summit held in Hong Kong last week, with many remarking that liquidity was a chief concern. Siew Mee Yeo, CIO of Conning Asset Management remarked on stage that a lack of hedging instruments was a dampener on investment appetite  as it made it tricky to manage US dollar/renminbi exchange movements.

If you would like to get hold of the China Fixed Income Investor Survey 2019, or would like more information about it, please contact FinanceAsia’s Keith Frith at [email protected].

* In terms of job title just over 70% were either designated head of fixed income or CIO of fixed income. The average volume of asset under management for the investment houses those surveyed work for was $6.18 billion.

The survey was conducted by research house East and Partners in August 2019 on behalf of FinanceAsia.

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