JPMorgan Asset Buys Offshore Yuan Debt for Index Bet
JPMorgan Asset Likes Offshore Yuan Debt as Index Inclusion Looms
(Bloomberg) -- JPMorgan Asset Management is positioning for the coming inclusion of Chinese domestic debt in a key global benchmark by betting on the relatively small market for yuan bonds traded offshore.
The thinking: many global funds won’t be ready quite yet to access the onshore market, and will need to turn in part to offshore yuan securities as a proxy. Bloomberg Barclays will add Chinese onshore fixed income to its main global index starting next week, a process that will spur what many strategists anticipate will be tens of billions of dollars of inflows a year.
“Some investors may not be ready for index inclusion,” said Jason Pang, a fixed income portfolio manager at JPMorgan Asset in Hong Kong. “If you don’t have access you’re going to have to look to CNH bonds, whether you like it or not,” he said, using the ticker for the China’s currency traded offshore. The trade had been profitable for JPMorgan and Pang expects it to continue this year, he said.
Other index compilers are also looking at China, enlarging the potential flows. JPMorgan Chase & Co., which produces its own gauges, will consult its investors over the second and third quarters on China inclusion, while FTSE Russell will consider the same question in an annual review due in September. Bloomberg LP, which administers Bloomberg Barclays indexes, also owns Bloomberg News.
“Is it a one-for-one? No,” Pang said in comparing offshore and onshore yuan debt. “But is it good enough as a proxy? Yes, it’s probably one of the best proxies you can achieve.”
While the initial bond-index inclusion wave centers on Chinese government and policy-bank bonds, Pang said he also expects to see greater investor appetite for other securities. Among them: Dim Sum bonds, which are offshore yuan-denominated bonds sold outside of domestic Chinese markets, and Panda bonds, which are onshore yuan securities sold by overseas borrowers.
To contact the reporter on this story: Gregor Stuart Hunter in Hong Kong at ghunter21@bloomberg.net
To contact the editors responsible for this story: Christopher Anstey at canstey@bloomberg.net, Adam Haigh
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