China Fixed Income: a fast growing and strategic asset class

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.

Download the PDF