BEIJING - China has to open up further its bond markets to foreign institutional investors now that the renminbi has been included in the International Monetary Fund’s (IMF) Special Drawing Rights basket of currencies, speakers and panelists say at The Asset 10th Asian Bond Market Summit 2016 being held today at The Westin Beijing Financial Street Hotel.
“The IMF’s inclusion of the renminbi into the SDR is more significant than generally acknowledged,” according to Vijay Chander, executive director, fixed income of the Asia Securities Industry & Financial Markets Association.
Chander says bond markets should be open to foreign investors in proportion to their domestic size, referring to China’s US$7 trillion bond market.
The further opening up of the renminbi bond market to foreign investors is expected to broaden the current global fixed income universe for long-term investors that are currently dominated by US treasuries.
“The world needs more long-term holders of bonds. Investors are willing to take that liquidity premium,” says Geoffrey Lunt, director, senior product specialist for Asian Fixed Income at HSBC Global Asset Management.
One big issue against the renminbi bond market is the lack of liquidity, but Chander argues that it could be a good thing as "it dampens speculative ardour.” Lunt says: “We demand liquidity (in the bond markets) but are very fickle about using it.”
One risk for investors in bond markets in general is the risk of deflation particularly with the slowing economic growth in China, but Han Tongli, chief investment officer of the fixed income for the Fosun Group notes: “Deflation is a nightmare scenario for all economies in the world. The only way out from current difficulties is for the market forces to play the dominant role and clear our overcapacity.”
The Asset is holding its 10th annual Asian Bond Market Summit for the first time in Beijing.
