BEIJING – US investors are one of the many foreigners who want to make a profit from China, especially the bond market.
One clear interest is in government bonds, where the Chinese 10-year yield is more than 3.2%. In contrast, the latest rise in US rates pushed Treasury yields to just 1.7% for ten years. The large difference gives investors in Chinese government bonds a significantly higher return.
“American investors are still very interested in investing in (the) Chinese market,” Tao Wang, head of UBS ‘economics and chief economist, said during a webinar with the Institute of International Finance on Thursday. “Especially from the perspective of the bond market, there is a structural increase in interest.”
While ‘China offers a high and stable return’, she noted that other countries are still using measures to promote growth, which has resulted in negative returns for many bonds. This means that buyers of bonds have to pay the issuer when the mortgage expires, rather than make money from it.
Specific data for US investor holdings were not available, but according to Reuters, investors outside mainland China had about 3.5% of the issuance of yuan bonds by the end of February. Foreign holdings of Chinese government bonds in particular reached about 10.6% of the issue last month, Reuters said.
Within two years, foreign holdings of Chinese government bonds nearly doubled to more than 2 trillion yuan ($ 307.7 billion), according to data from Wind Information.
The increased interest comes when Chinese bonds are added to the major investment indices followed by global investors, causing billions of dollars in Chinese debt purchases.
The purchases have grown over the past few months for JP Morgan Asset Management’s China Bond Opportunities Fund, according to Jason Pang, the company’s portfolio manager in Asia.
“There is no clear reason why we should not be disconnected from this particular market,” he said. Pang pointed out that the Chinese economy is ahead of other countries when it comes to recovering from the coronavirus pandemic, and said the likelihood of a much higher selling price in China is much lower than in the rest of the world. ‘
As much as international interest in the Chinese bond market has increased, Pang said many of the investments are still in an ‘experience phase’ as foreign investors need to learn even more about the Chinese mainland market.