Asset managers, brokers gear up for launch of China’s southbound Bond Connect
- The launch of China’s southbound bond trading link will likely boost liquidity in Hong Kong and US dollar-denominated bonds, industry players say
- Mainland insurance companies’ investment assets hit 21.7 trillion yuan (US$3.4 trillion) at the end of 2020
The southbound leg of China’s Bond Connect programme will likely stimulate demand from mainland Chinese investors for Hong Kong and US dollar-denominated bonds, boosting valuations when the link goes live as widely expected in the coming months, said asset managers and bankers.
The liberalisation of China’s financial markets presents a huge opportunity for both China’s myriad securities firms that glean commissions for trading bonds as well as international managers of bond portfolios, who are hoping demand for foreign-denominated bonds will receive a bump when mainland investors have an easier route to invest in offshore fixed-income markets.
“The launch of the southbound [link] could broaden the investor base for [Hong Kong] dollar bonds, whereas the support for the US dollar bond market could be strengthened even further,” wrote Elizabeth Allen, head of Asian fixed income at HSBC Asset Management.
Bond Connect, a mutual market access mechanism between mainland China and Hong Kong, launched in July 2017 with just northbound access for foreign investors into the world’s second-largest bond market. A southbound leg will complete the loop and continue China’s opening up of outflows in a controlled fashion.