The Gulf Time Newspaper One of the finest business newspapers in the UAE brought to you by our professional writers and editors.
Bloomberg
Turns out that China’s new Bond Connect with Hong Kong isn’t just good for foreigners. Offshore Chinese money is using the channel to bring money back home, taking advantage of opportunities in domestic credit products.
With the Chinese yuan’s exchange rate rising in recent months against the dollar — and likely to stay stable with a critical Communist Party leadership conference looming later this year — that’s made it more attractive to invest in higher-yielding domestic bonds.
Since the Bond Connect kicked off on July 3, offshore institutions have taken nearly 1.5 billion yuan ($222 million) of short-term corporate debt with a tenor of no more than one year in the primary market, and another 2 billion yuan plus of secondary transactions, according to data from the Shanghai Clearing House.
With foreign investors generally preferring government bonds, offshore Chinese fund managers are leading the charge into credit, market participants say. Yields on benchmark one-year corporate debt are about 1 percentage point higher than comparable government securities.
“Chinese institutions have a better nose and act more quickly because they’re familiar with the issuers and markets on both sides,†said Kun Shan, head of local-markets strategy in Shanghai at BNP Paribas SA. Many Chinese banks, securities houses and fund managers have Hong Kong branches or subsidiaries and would choose
to repatriate the money to take advantage of the arbitrage opportunity of a rising yuan, according to Shan.
Implied yields on 12-month offshore yuan forward contracts have fallen below the rates on bonds sold by China Development Bank.