When could China onshore bonds be included on global indices?

Published on 20 Sep, 2016

Three global indices are considering including China's onshore bonds on their indices, which has the potential for strong capital inflows.

Talks are underway between China and three key global bond benchmark indices – JP Morgan Global Government Bond Index, Barclays Capital Global Aggregate Bond Index and Citi World Government Bond Index to include onshore bonds after the mainland authorities relaxed fules for foreign participation in the China interbank bond market (CIBM) in May.

Standard Chartered, among the most optimistic, said last week that the inclusion of the onshore bond market onto the global benchmark indices could take place in the coming three to six months.

Currency caution

Other firms had varying opinions. Dinesh Saboo, fixed income and credit research AVP of Aranca, a research and advisory firm believes it will take another year.

“Announcements over the past couple of months, including simplification of access procedures in the onshore bond market for long-term investors, management of RMB according to a basket of global currencies versus the US dollar, and inclusion of the RMB in the IMF’s SDR basket, have mildly alleviated the concerns of global investors and index providers.

“However, we believe the inclusion will take another year or more to complete as policy changes and the systematic opening of the markets need to be more pronounced and followed by relevant executable actions.”

Meanwhile, overseas investors tend to be more cautious after the sudden yuan devaluation last summer, he added. “They would like to observe the changes and interventions in the currency regime over the long-term more closely.”

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