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European fund managers increasing exposure to Chinese bonds, suggests new research from NTree

China’s fixed income market is seeing a resurgence of interest among European fund managers according to new research by China specialist NTree International.

A survey of 150 European institutional investors and wealth managers with combined AUM of US$293bn indicated 63% expected foreign investment into the asset class to have increased in Q1 2021, compared to Q4 of 2020. 

International investors currently own about 3% of China’s onshore bonds.  The research reveals that 17% of institutional investors predict that this will increase to 5% this year, with 35% and 32% expecting it to reach this in 2022 and 2023 respectively.

Three quarters (76%) of respondents agreed with the view that the expected increase in foreign investment in the Chinese fixed income market this year will be driven by monetary and fiscal policies in developed markets in relation to COVID-19, the continued growth in negative yields in Western fixed income markets and the fact that major bond indices are increasingly adding Chinese debt to their compositions.

The majority (80%) also agreed that there will be an improvement in liquidity, ease of trading and market access in the Chinese bond market over the next three years as it catches up with more developed markets.

Timothy Harvey, NTree’s chief executive, said: “The Chinese fixed income market is becoming more attractive as it matures and as investors look to new sources of yields. 

“The outlook is very positive for the asset class with significant inflows of foreign investment predicted.”

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