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Unlocking China’s Burgeoning Bond Market


UNLOCKING CHINA’S BURGEONING BOND MARKET

ben-yuen

Ben Yuen
Chief Investment Officer,
Fixed Income
BOCHK Asset Management

With the launch of the “Bond Connect,” China’s domestic bond market, the third-largest in the world, is heralding in a new era of foreign investments. Among those rubbing hands for the exciting change is BOCHK Asset Management Limited (BOCHK AM), winner of this year’s House Award in China Fixed Income. As one of the first witnesses of China’s market liberalization, Ben Yuen, Chief Investment Officer, Fixed Income, at BOCHK AM, shared with BENCHMARK what the future may hold for Chinese bond investors.

BENCHMARK (BM): China’s financial market liberalization has reached many milestones in recent years. As an award winning fund manager in China Fixed Income, could you tell us what that would mean for the onshore bond market?
Ben Yuen (BY): Sure. Overall, we are seeing an increasing global demand for CNY-denominated assets. Following the announcement of the European Central Bank (ECB) last year that it would be switching EUR 500 million worth of its foreign reserves to CNY, the German central bank also decided to include the Chinese Yuan in its own reserves. Besides, anecdotal evidence shows that, in the onshore bond market, rate bonds and banks’ Negotiable Certificates of Deposits (NCDs) attract more foreign interest. Foreign purchases of NCDs through Bond Connect reached RMB 33.4 billion as of 2017Q3, according to the Shanghai Clearing House’s data. Also, offshore investors’ total holdings of onshore interbank bonds in 2017 (through Bond Connect and other channels) amounted to RMB 348 billion, a 130% year on-year growth!

BM: That’s an amazing number! Moving to 2018, should we expect more game changers?
BY: One significant game changer is the highly probable inclusion of the onshore bond markets into at least one of the widely tracked international indices (e.g., JPMorgan’s Government Bond Index – Emerging Markets, Citibank’s World Government Bond Index, or Bloomberg Barclays Global Aggregate Index). This will likely attract significant foreign fund inflows into the onshore bond markets (especially for CGBs and policy bank bonds) starting in 2019.
BM: China’s bond market has become the world’s third-largest. Are there any risks associated with the surge in onshore issuance? How do you mitigate these risks?
BY: For foreign investors, the major concern regarding investing in the onshore market is the incomprehensive credit-rating system, which fails to meet international standards. According to domestic rating agencies, 37.7% of China onshore credit bonds are rated as AAA. However, many investment grade onshore issuers are usually rated non-investment-grade in the offshore Dim Sum bond market (e.g., Evergrande) by international credit agencies.

To cope with this disparity of credit-rating standards, we make a point of maintaining an internal rating system to track the credit matrix development of different bonds.
BM: China’s property bonds remain your key portfolio holdings despite the trimmed exposure. Will you continue to favor this sector in 2018? What other sectors are on your radar?
BY: We expect China’s property sector to stay stable. Although President Xi reaffirmed that “houses are built to be inhabited, not for speculation” during the National Congress last year, no new tightening policies have been introduced so far. We believe that the Chinese government is comfortable with the existing measures, and hence, we don’t expect any major housing-price fluctuations in 2018. Currently, the Chinese real-estate sector is highly transparent, with contract sales figures being reported on a monthly basis. We can easily identify any abnormalities by cross-checking with comparable issuers. That said, we remain vigilant on credit selection.
Within the Asian High Yield USD bond universe, we are now investing in the Chinese industrial sector and Indonesian corporate bonds, as well as the local currency bonds of some Asian or Emerging Markets, on a selective basis.
BM: Corporate governance is highlighted as one of your most important evaluation criteria in credit selection. However, collecting data, especially extra-financial information, from domestic companies could be a challenge. How do you overcome this?
BY: Yes, we do value the importance of corporate governance in our credit selection process, and that’s why we keep close connections with onshore corporate issuers and maintain regular dialogue with their management through telephone calls, offshore investor meetings, and on-site visits. Together with the insights provided by different onshore research houses that closely track onshore issuers, we can spot any abnormalities in issuers’ financial data and extra-financial information. With more and more Chinese corporates issuing bonds overseas, we have noticed appreciable improvements in information-sharing, a crucial element to satisfy offshore regulators and investors. BM

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開啓中國蓬勃發展的債券市場

ben-yuen

固定收益首席投資官阮卓斌
中銀香港資產管理

著「債券通」的推出, 位列全球第三大的中國債券市場帶領海外投資者進入了投資新紀元。正當市場參與者對中國債市摩拳擦掌之際,中銀香港資產管理有限公司榮獲今年基金公司大獎—固定收入—同級最佳。作為中國市場自由化的首批見證人之一,中銀香港資產管理固定收益首席投資官阮卓斌與《指標》分享了他對中國債市未來走勢的看法。

《指標》:中國金融市場自由化近年來寫下一個又一個里程碑,作為中國固定收益基金的獲獎基金經理,你能否告訴我們這對在岸債券市場意味著什麼?
阮卓斌:當然可以。總括來說,我們看到環球對人民幣計價資產的需求不斷增加。繼歐洲央行去年宣布將其5 億歐元外匯儲備轉換為人民幣後,德國央行也決定將人民幣納入其儲備。此外,市場資料顯示,在岸債券市場中,利率債和銀行可轉讓存款證(NCDs)吸引了許多海外投資者的興趣。根據上海清算所數據,截至2017年第三季,通過「債券通」購買NCDs金額已達334 億元人民幣。2017 年,境外投資者持有境內銀行債券(透過「債券通」及其他渠道買入)已達3,480億元人民幣,同比增長130%!

《指標》:這是一個驚人的數字! 2018 年我們應該會迎來新的改變吧?
阮卓斌:一個重要的新改變可能是將在岸債券市場納入至少一個國際指數中(例如摩根大通政府債券指數─新興市場債券指數、花旗世界國債指數或彭博巴克萊全球綜合債券指數)。預計明年會吸引大量外資流入在岸債券市場(尤其是中央政府債(CGB)和銀行債)。
《指標》:中國已成為世界第三大債券市場,會否因在岸債券發行激增而帶來風險?你如何減輕這些風險?
阮卓斌:對外國投資者而言,投資於在岸市場的主要關注點是中國信用評級體系較難以理解,亦未能與國際標準接軌。據中國內地評級機構統計,有37.7%中國在岸信用債被評為AAA級,然而,很多發債人(如恆大)在離岸點心債券市場中卻被國際評級機構評為非投資級別。

為應對信用評級標準的差異,我們著重以內部評級系統來監察不同債券的信用變化。
《指標》:儘管減少了風險,中國的房地產債券仍然是你投資組合中的主要資產。2018 年你會繼續持重這行業嗎?你還留意哪些行業?
阮卓斌:我們預計中國房地產行業將保持穩定發展。儘管國家主席習近平在去年的「十九大」全國代表大會上重申「房屋是用來居住的,而不是投機的」,但迄今暫未見有任何新的調控政策出台。我們認為中國政府對現有措施感到滿意,因此預計2018年房價不會出現大幅波動。目前,中國房地產行業透明度很高,每月都會公布銷售數據,我們可以易於用數據與發債人進行交叉核對,以識別任何異常情況。也就是說,我們仍然時刻謹防信貸的選擇。
在亞洲高收益債券領域,我們正投資於中國工業和印尼企業債,以及一些亞洲本幣或新興市場貨幣債券。
《指標》:公司管治是你們信貸評級中最重要的標準之一,但是從內地企業收集數據,尤其是額外財務信息,可能是一項挑戰。你如何克服這點?
阮卓斌:是的,我們在挑選信貸時非常重視公司管治,因此我們與在岸發債人經常保持密切聯繫,例如經常與管理層通電,舉辦離岸投資者會議和企業現場考察;加上不同在岸研究機構提供的意見,如發債人的財務數據或額外財務信息有任何異常情況,我們也可及早發現。隨著越來越多中國企業在海外發債,我們留意到企業在訊息共享方面有顯著改善,以符合海外監管機構和投資者的關鍵要素。BM

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