China bonds go mainstream

For decades, overseas investing in China was considered a complex and tightly-controlled affair - something for tomorrow not today observes HSBC.

However a series of reforms in recent years, the banks says, more avenues have opened up for foreign investors. Chinese bonds and equities are being included in major global indices. Last year alone, the bank continues, international investors bought more than USD81 billion of Chinese bonds, making the country the largest recipient of foreign investment among emerging bond markets globally.

HSBC Global Research expects another USD150 billion to follow over time - and an additional USD600 billion to head into Chinese stocks in the next five to ten years. The scale of these inflows, it says, speaks volumes about the changes that are taking place in China's capital markets.

Inclusion in global indices means asset managers around the world who use these benchmarks to invest savings and public money on behalf of pension plans, sovereign wealth funds and insurance companies, HSBC advises, will need to start buying Chinese bonds and equities if they want to track the performance of those indices.

The next milestone, it identifies, comes with renminbi-denominated bonds issued by China's government and policy banks now included in the Bloomberg Barclays Global Aggregate Index. Tracked by around USD2,5 trillion of assets under management, it is one of the world's most important bond indices.

The change, the bank explains, means that many asset managers and ordinary savers around the world are set to increase their exposure to a market that is still under-represented in global investment portfolios. It will give them a great stake in an economy whose shift towards higher-tech and services-oriented growth is swelling the ranks of the middle classes.