China's domestic bonds marked another milestone in the opening up of the country's financial markets after becoming part of a major global index on Monday. According to reports, hundreds of domestic Chinese bonds will be added to the Bloomberg Barclays Global Aggregate over the next 20 months.
The estimates of the analysts estimated that the inclusion of the bonds will attract more or less $150 billion of foreign inflows to China's $13 trillion bond market. China's market ranks third globally following the United States and Japan.
The index inclusion shows that China is ready to open up its financial markets to global investors. In 2018, the MSCI included a Chinese A-shares, a yuan dominated stocks traded on the mainland, in its Emerging Markets Index. The Chinese government also launched connect programs to allow investors to purchase certain shares and bonds through the stock market in Hong Kong.
According to Justin Chan, HSBC's co-head of global markets in the Asia Pacific, the inclusion marks an important milestone as China's capital markets continue to find their place in the global investment mainstream.
Reports said that there are 364 bonds to be added on the Bloomberg Barclays Global Aggregate Index. The bonds were issued by the Chinese government and the "policy banks" in China were set up to support China's development plans and policies.
Reports said that there are 159 Chinese government bonds to be added on the index. The bonds also included those from China Development Bank, the Agricultural Development Bank of China, and the Export-Import Bank of China.
It is expected that China's weight in the index will increase by 6 percent when the bonds are fully added to the global benchmark. It is expected also to contribute to Chinese yuan as it moves into the fourth-largest currency component.
According to analysts, being added into the Bloomberg Barclays Global Aggregate Index will change things for China since the index is widely tracked by asset managers all around the globe as they seek to replicate the benchmark's holdings and performance.
Neeraj Seth, managing director and head of Asian fixed income at global investment management firm BlackRock, the inclusion of Chinese bonds into various indexes will push China to further reform its financial markets. He added that more opening up of the financial sector, reforms with regards to how you manage credit risk, more development of the derivatives market onshore - all that will continue, which will further pave the path for both index inclusion as well as the entry of foreign investors into this market.
