China’s $9trn bond market lures Neuberger, Fidelity

Bloomberg

A bond slump in China hasn’t damped top global funds’ interest in the $9 trillion market as the government opens the door to greater access.
Neuberger Berman Group LLC, based in New York, is considering launching a private fund with a focus on bonds after Fidelity International became the first global asset management firm to do so in China last week. Foreign investors’ holdings of Chinese onshore notes rose to 772 billion yuan ($112 billion) in April, from 762 billion yuan in March, even as local notes lost the most in four months.
“It’s likely our first fund will be in the fixed-income space” in China, Nick Hoar, Hong Kong-based managing director and head of Asia Pacific at Neuberger Berman, said in an interview. The firm oversaw $267 billion worldwide as of March 31.
China is accelerating the opening
of the world’s third-largest debt market to help counter capital outflows and seek inclusion in global bond
indexes. Bloomberg Barclays Ind-
exes, owned by Bloomberg, overhauled its China fixed-income gauges and started a Global Aggregate + China index on March 1, while stopping short of adding the nation to major benchmark measures.
Morgan Stanley in the same month said it expects Chinese government debt to become eligible for major bond benchmarks over the next 36 months, after Citigroup Index LLC said that China onshore sovereign notes are set to join some of its gauges.
“Undeniably, the renminbi bond markets are the future of Asia’s bond markets and will play in global financial markets for many years to come,” said Freddy Wong, a fixed income portfolio manager who oversees the private fund at Fidelity, in a press release. “The size of the onshore market is currently over 65 trillion yuan, and is expected to reach 100 trillion yuan by the year 2020, surpassing that of the Japanese market.”
In June 2016, China allowed foreign asset management firms to set up onshore units to sell bond or stock funds to eligible onshore institutions and rich individuals in private placements. Global funds including Invesco Ltd. and Value Partners Group Ltd. said they are aiming to get regulatory approval to set up private funds in China.