Overseas institutions with positions over 3 trillion yuan have become a new investment force in Chinas bond market

 Overseas institutions with positions over 3 trillion yuan have become a new investment force in Chinas bond market

At the beginning of December, the monthly reports of bond link, China bond and Shanghai Stock Exchange reported good news: in November, overseas institutions increased their positions in Chinese bonds.

According to the bond link data, the total transaction volume of bond link in November was 485 billion yuan, a record high in a single month. According to the data of China bond Depository Trust, as of the end of November, the amount of custody of overseas institutions reached 2766.3 billion yuan, an increase of 83.6 billion yuan over the end of last month, a 24 month increase. As of the end of November, the custody volume of overseas institutions was 325.2 billion yuan, an increase of 13.1 billion yuan compared with the end of last month, according to the data of SSE. According to the data from the Shanghai headquarters of the central bank, as of the end of November, foreign institutions held 3.1 trillion yuan of bonds in the interbank market, an increase of 96.7 billion yuan compared with the end of last month.

In recent years, it is often used to describe foreign investment in Chinas capital market by rushing to raise money and buying up. In June 2014, the position data of overseas institutions disclosed by China Securities and bonds Company Limited for the first time was 436.8 billion yuan, accounting for less than 1.5% of the total amount of custody in the inter-bank bond market. Today, the position of overseas institutions has exceeded 3 trillion yuan, which has increased by more than 6 times in the past six years, and the position proportion has also risen to more than 3%. In the first 11 months of this year alone, the position size of overseas institutions increased by 903.8 billion yuan.

It should be pointed out that in addition to buying and selling, bond maturity will also affect the position data. Considering that overseas institutions hold a lot of short-term bonds, their net buying scale should be more than 903.8 billion yuan.

First, the volume increases. At present, overseas institutions holding more than 3 trillion yuan of Chinese bonds have become the third largest investor in the market after domestic commercial banks and broad funds. Secondly, purchasing power is strong. Even though the bond market has gone through several cycles, the data of overseas institutions positions continues to rise and has always been a firm buyer of Chinese bonds. In recent years, foreign institutions have further increased their positions. The position exceeded 1 trillion yuan in September 2017, 2 trillion yuan in July 2019, and 3 trillion yuan in November 2020. Third, there are many market entrants. Foreign institutions continue to enter the market. By the end of November, a total of 893 overseas institutions had entered the market, with 17 new in the month.

Although the market share is only slightly more than 3%, the influence of overseas institutions on some securities can not be ignored. According to statistics, overseas institutions mainly hold treasury bonds, policy financial bonds and interbank certificates of deposit, accounting for 93% of their positions. As of the end of November, foreign institutions held 1.79 trillion yuan of Chinas treasury bonds, accounting for about 10% of the amount of book keeping treasury bonds. In addition, according to industrial research, in the first nine months of this year, foreign institutions increased their holdings of treasury bonds and policy financial bonds, accounting for 14% and 19% of the net financing scale of the securities in the same period.

The momentum of overweight will continue

The increasing influence of overseas institutions is a microcosm of the deepening of Chinas bond market opening to the outside world. From the position data, since 2017, the strength of overseas institutions to increase their positions has been further increased, corresponding to a period when Chinas financial industry has taken a landmark step in opening up: the opening of bond link in 2017, the introduction of tax-free policy in 2018, the introduction of 11 items of financial openness in 2019, and the cancellation of QFII / rqfii quota in 2020 More abundant market entry channels, more friendly policy environment and more perfect supporting system have boosted the enthusiasm of overseas investors to participate in Chinas bond market.

Industry insiders believe that under the background of accelerating the pace of financial opening up and steady and prudent promotion of RMB internationalization, the general trend of foreign capital entering the Chinese market and increasing the allocation of RMB assets will continue.

From the investment point of view, the current Chinese bonds are highly cost-effective. First, there is a large interest rate gap between China and the United States. The 10-year Treasury bond interest rate difference between China and the United States exceeds 230 basis points, which is at a historical high. Second, the exchange rate of RMB is strong. This year, the RMB has appreciated by more than 6% against the US dollar, which is outstanding among major currencies. Market participants pointed out that interest spread and exchange rate are important factors affecting the participation of overseas institutions, especially foreign commercial institutions, in Chinas bond market.