Advertisement
China economy
BusinessBanking & Finance

China set to lure billions of dollars in funds as sovereign debt enters FTSE index amid decoupling concerns

  • Chinese state debt to be included in FTSE World Government Bond Index in October 2021
  • Inclusion could bring new inflows of up to US$150 billion to Chinese bond market, HSBC says

Reading Time:4 minutes
Why you can trust SCMP
FTSE Russell will add Chinese sovereign bonds to global bond benchmarks from October 2021, potentially drawing more fund inflows into its US$16 trillion debt market. Photo: Reuters
Chad Bray

Chinese government debt will be included in yet another benchmark bond index, potentially drawing more money from global fund managers amid heightened concerns about economic decoupling with the US in recent months.

Advertisement
FTSE Russell will start adding the sovereign debt into its World Government Bond Index from October next year, the latest milestone in the opening of the country’s US$16 trillion bond market to foreign capital. JPMorgan Chase and Bloomberg Barclays previously unveiled programmes to phase in the yuan-denominated notes into their indices beginning last year.

The latest move suggests global appetite for Chinese assets has not been diminished by more than two years of trade war between the world’s two biggest economies and efforts to restrict Chinese companies from accessing the US capital market for funding. The rising tensions have also widened into other spheres, including allegations of espionage and disputes over the origins of coronavirus pandemic and the national security law in Hong Kong.

“The Chinese authorities have worked hard to enhance the infrastructure of their government bond market,” said Waqas Samad, FTSE Russell’s chief executive and director of information services for the London Stock Exchange Group, in a statement. “Subject to affirmation in March 2021, international investors will be able to access the second largest bond market in the world through FTSE Russell’s flagship WGBI.”
FTSE is owned by the London Stock Exchange Group. Thursday’s decision came after the index provider declined to emulate its major competitors in adding Chinese debt to its suite in a September 2019 review, without citing a reason. Market size, credit quality and currency convertibility are among typical inclusion criteria.

Morgan Stanley previously said the inclusion of Chinese state debt in the FTSE Russell index could attract inflows of as much as US$90 billion next year, while HSBC said on Friday that new inflows into Chinese debt could top US$150 billion as a result.

Advertisement