Industry Updates

Big inflows for BlackRock’s china bond ETF as investors hunt for yield

Most across all European-listed ETFs in the week to 28 August

Tom Eckett

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Investors are eyeing up the attractive yields China’s domestic bond market is currently offering with foreign ownership reaching record levels.

According to data from Ultumus, the $1.3bn iShares China CNY Bond UCITS ETF (CNYB) saw $376m inflows in the week to 28 August, the most across all European-listed ETFs.

The inflows come as China saw a dramatic recovery from the coronavirus turmoil posting 3.2% GDP growth in Q2, up from a 6.8% fall in Q1.

This recovery has encouraged investors to turn to China’s domestic bond market which is offering more attractive yields than developed markets.

According to a report by Moody’s, foreign ownership reached a record $360bn as of 30 June versus $290bn inflows in 2019.

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These flows are the result of an effort by China policymakers to open-up the domestic bond market over the past few years.

In 2016, the China Interbank Bond Market Direct Access was set-up in 2016 while the Bond Connect trading platform kicked-off in 2017.

Meanwhile, domestic Chinese bonds were included in the flagship Bloomberg Barclays Global Aggregate index for the first time in 2019.

William Xin, head of fixed income at Eastspring China, said the low correlation with other fixed income markets made Chinese bonds a good diversifier for global investors.

“The low correlation is because the bond market is more influenced by domestic factors rather than global events,” Xin added.

“The market’s large local investor base, with relatively low share of foreign investors, also means that domestic investors’ expectations and demand tend to be a bigger bond market driver.”

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Furthermore, he said the forecasts for low developed market interest rates especially in Europe meant the yield pick-up offered by Chinese bonds would continue to draw in investors.

“Apart from the allure of yields, there is also increasing evidence of the use of renminbi as a reserve currency; a number of central banks have increased the RMB reserve targets in a move to diversify away from the US dollar and euro blocs to a more tripolar system,” he concluded.

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