Investors could pour up to $270 billion into Chinese renminbi-denominated bonds once they are included in benchmark bond indices, which could occur in the next one to two years, Barclays said on Wednesday. The bank estimated that foreign ownership of Chinese bonds could rise to around 8 percent from 4 percent currently, though it stressed that uncertainty around such estimates was high.
Barclays noted that China was the only major bond market not currently included in benchmark bond indices such as JPMorgan's GBI-EM Global Diversified, despite total debt outstanding of some $9 trillion. At the end of last year, foreigners held a mere 870 billion yuan worth of bonds in the Chinese market, an increase of 83.4 billion yuan from the year before, the State Administration of Foreign Exchange said.
In July, China launched its Bond Connect scheme, allowing eligible Hong Kong and overseas institutions to buy and sell onshore securities. In its note, Barclays argued that China now met the market size and credit ratings criteria for inclusion in benchmark bond indices.
"Although barriers to foreign investment have been a hurdle, the People's Bank of China (PBOC) has progressively improved access for foreign investors through deregulation," Dennis Tan, an analyst at Barclays said in the note. If the PBOC continues to make regulations and market conditions more investor friendly, renminbi-denominated bonds could be included in investible benchmarks in the next one to two years he said.