China: Opening up access to its bond market – RBC CM

Sue Trinh, Head of Asia FX Strategy at RBC Capital Markets, suggests that attracting foreign investors to the onshore bond market has become a policy priority for the Chinese government.

Key Quotes

“Reforms announced in February to improve foreign investor access were lauded by many commentators as a “game changer” that would draw in “trillions of inflows”.

You can lead a horse to water, but you can’t make it drink. There remain significant challenges in attracting foreign demand and fulfilling criteria required for inclusion in World Government Bond Indices. Given the low level of existing foreign participation, there is a lot of potential for capital inflows, but we aren’t there yet.

A much weaker CNY would go a long way to improving the risk/return metrics for foreign investors and our above consensus USD/CNY forecast of 7.5 in 2017 is consistent with the Chinese government’s desire to attract medium- to long-term foreign investment.”