China Fixed Income: a fast growing and strategic asset class

Following confirmation China will be included in the WGBI, we discuss the structural shifts that are propelling China bonds to the mainstream and this asset class’s increasing relevance for today’s investors

14 Apr 2021

9 minutes

Wilfred Wee
Alan Siow
Mark Evans

The fast view

  • China’s bond markets cover a large and increasingly diverse opportunity set, offering a range of potential benefits to investors.
  • The widening of these markets to overseas investors in recent years has spurred a trend for increased allocations; record sums flowed into onshore Chinese debt in 2020.
  • Recent confirmation that FTSE Russell will include China bonds in the World Government Bond Index is expected to contribute c. USD 130 billion of passive inflows over the next two-to-three years, continuing the mainstreaming of this asset class.
  • Although it is increasing, exposure to China fixed income is still relatively low in global bond portfolios.
  • Yet this asset class offers a higher risk premium and superior yields relative to other bond markets, as well as a lower correlation with other asset classes. Combined, superior portfolio outcomes can be achieved through diversification.
  • We believe a number of structural considerations will drive growing foreign participation in China’s bond markets.

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Specific risks
Emerging market (inc. China): These markets carry a higher risk of financial loss than more developed markets as they may have less developed legal, political, economic or other systems.

General risks
All investments carry the risk of capital loss. The value of investments, and any income generated from them, can fall as well as rise and will be affected by changes in interest rates, currency fluctuations, general market conditions and other political, social and economic developments, as well as by specific matters relating to the assets in which the investment strategy invests. If any currency differs from the investor’s home currency, returns may increase or decrease as a result of currency fluctuations. Past performance is not a reliable indicator of future results.

Authored by

Wilfred Wee
Co-Portfolio Manager, All China Bond
Alan Siow
Co-Portfolio Manager, All China Bond
Mark Evans

Important Information

This communication is provided for general information only should not be construed as advice.

All the information in is believed to be reliable but may be inaccurate or incomplete. The views are those of the contributor at the time of publication and do not necessary reflect those of Ninety One.

Any opinions stated are honestly held but are not guaranteed and should not be relied upon.

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