A Global Fund Craves China Bonds, Once They Are `Truly Liquid'
A Global Fund Craves China Bonds, Once They Are `Truly Liquid'
(Bloomberg) -- One of the largest providers of local-currency emerging-market exchange-traded funds is eager to buy more Chinese bonds. Just not quite yet.
Van Eck Associates Corp. has found its timeline to set up access to Chinese domestic bonds via the Bond Connect in Hong Kong longer than it expected, as the company worked through internal procedures and the exchange’s requirements. Assuming it does win approval, it would then encounter trading volumes in government debt that are below those of other major economies -- a challenge awaiting all funds eyeing China’s inclusion in global indexes.
“I am very much in favor of the movement towards inclusion once the market is operationally ready,” Francis Rodilosso, head of fixed income ETF portfolio management at Van Eck, said in an emailed response to questions this week.
China’s debt market -- the world’s third largest -- has enjoyed record inflows from abroad since the Bond Connect was set up in mid-2017, though purchases have slowed lately. They are forecast to pick up anew with global bond index inclusion.
Rodilosso said Van Eck uses benchmarks from JPMorgan Chase & Co., which at present does not include domestic Chinese debt in its flagship indexes. Another provider, Bloomberg Barclays, will start including some Chinese yuan bonds from April. FTSE Russell, a third one, is reviewing the issue, with an announcement expected in September. Bloomberg Barclays is owned by Bloomberg LP, which is the parent of Bloomberg News.
“Our hope and our ask is that they would not include onshore Chinese bonds in the index until they were truly liquid and tradeable from a U.S. investor’s point of view,” Rodilosso said in an interview last week of JPMorgan and its approach. JPMorgan spokeswoman Gurpreet Kaur declined to comment on the index-inclusion process.
Van Eck has an institutional license, subject to a quota, to invest directly in China’s domestic bond market, but is also seeking Bond Connect approval. “From start to finish it takes a lot of time and investors need to plan for more than one-to-two months,” Rodilosso said.
Meantime, the $5.5 billion VanEck Vectors J.P Morgan EM Local Currency Bond ETF goes without a slice of China, the largest emerging market, according to its prospectus.
--With assistance from Yusuke Takeshita.
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, Cormac Mullen
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