Too big to ignore – the impact of China’s index inclusion
As Chinese bonds gain more international exposure from inclusion in Bloomberg Barclays global index this year, issues like transparency and liquidity need to be addressed
28 May 2019 | Darryl Yu

Chengdu, China - With yuan-denominated debt being included in the Bloomberg Barclays Global Aggregate Bond Index from this April and over the next 20 months, foreign investors need to start preparing for additional Chinese exposure. While global investors welcome the move, issues surrounding market infrastructure, liquidity and transparency still remain.

As a topic of significant interest, a group of panelists at The Asset’s 13th Asian Bond Markets Summit took an in-depth look into what needs to be done to provide an additional level of comfort for foreign investors entering China.

“One of the major concerns of foreign investors re-allocating capital in China following the inclusion of China onshore bonds to the global bond index is that the exchange rate could be easily impacted by the ongoing trade war,” shares one panelist.

Nevertheless there is a clear sign that going forward more foreign investors would need to take a closer look at the onshore rating of Chinese companies with a focus on local expertise. In fact, several foreign investors looking at China closely have started to engage with local onshore rating agencies.

“The challenge for Chinese rating agencies is that international investors might not know about or trust them. Foreign asset managers say that Chinese rating agencies’ rating systems are different from international ones as they tend to have higher ratings,” says one speaker. “Foreign asset managers say that they cannot trust a corporate just according to its rating from Chinese rating agencies.”

However, despite the seeming lack of trust onshore Chinese rating agencies are looking to develop themselves. “Chinese rating agencies are starting to look at international practices and international rating agencies are also looking at Chinese practices. The two sides are getting to know about each other as [the latter] is getting ready to enter the Chinese market. Foreign asset managers also recognize this as a positive trend,” explains one speaker on the panel.

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