China's bond market

Australian Investment Manager QIC predicts high demand from foreign investors as Chinese Bonds are included in the Bloomberg Global Aggregate Index from 2019; expects other world indices to follow suit


The news that foreign index providers are poised to add Chinese onshore bonds to their broadly-followed global benchmarks from April 2019 is set to significantly increase interest in and demand for Chinese bonds from passive and active foreign investors, according to the latest Investment Insight,An illusion-free take on China’s bond market” from leading Australian investment manager QIC. 

Susan Buckley, Managing Director, Global Liquid Strategies at QIC, commented, “Just as China’s USD6 trillion equity market became too big for the world’s investors to ignore, so too is the country’s USD12 trillion bond market. China is the world’s second-largest debt market behind the US and we see excellent prospects for growth, encouraged by the willingness of the national government to increase fiscal spending to offset any slowdown in private and local government investment, as well as the efforts of local government towards bond financing to raise money.”

According to QIC, reasons to consider investing now come not just from the market's enormous size but also from the ability to invest and transact more freely, and to repatriate capital unimpeded, in addition to the pending inclusion in the best-known indices.  

China's onshore bond market has previously been infamously difficult to access, so foreign investors currently own less than 3% of the market versus an average of 43% foreign ownership across many developed country markets, including those of Germany, France, the UK and Australia. This all changed in July 2017, however, with the successful launch of Bond Connect, which allows foreign investors to buy Chinese debt directly without going through the onerous process of opening an account in China, applying for local currency quotas and finding an onshore clearing agent with international settlement capability.

And there's more to come. From April 2019, the Bloomberg Barclays Global Aggregate Index is planning to include Chinese yuan-denominated government and policy bank securities. This would see the Bloomberg benchmark include roughly 400 Chinese securities, representing around 5.5% of the USD52.9 trillion index.[1]  The addition of the securities will be phased-in over a 20-month period, with the process expected to be completed by November 2020.

Ms Buckley continued, “Bloomberg has taken the lead with the inclusion of China bonds into its index, and we think investors will be closely monitoring to see if FTSE Russell Fixed Income indices will do the same for its World Government Bond Index (WGBI), and if JP Morgan will also follow for its Government Bond Index – Emerging Markets (GBI-EM). We believe they are likely to follow suit in 2019 or 2020.”


According to QIC, the Chinese bond market provides a new way of accessing the China story, different from the usual interactions between China and the world, and offering benefits that include greater yield as well as the diversification enabled by a government that has very different fiscal and monetary cycles to developed markets.

Ms Buckley expanded, “We believe this diversification is the greatest benefit Chinese bonds can bring to fixed income portfolios – including the reduction in return volatility due to the lower correlation of CNY bond yields to movements in global interest rates. Indeed, we estimate that the risk-adjusted returns of the Bloomberg Global Aggregate Index would have improved by nearly 15 basis points per annum in the last five years if onshore China bonds had been included.”

In its Investment Insight, QIC highlights additional benefits of foreign investment for China beyond attracting portfolio flow, suggesting that by diversifying sources of capital, China can reduce systemic risk in the banking sector as Chinese companies obtain financing in local corporate bond markets under greater scrutiny and market discipline than they previously have from domestic investors

The Investment Insight also reports that foreign investment in China bonds surged by USD13.2 billion in June: the largest monthly flow on record. Overseas demand for CGBs remained strong, despite sharp currency weakness during June, likely reflecting a structural rise in demand for China bonds. And on a year-to-date basis, foreign investments in CGBs reached USD48 billion in June, far exceeding the annual inflows of USD27 billion in 2017.

Ms Buckley added, “It is likely and desirable that active foreign investors should step-up CNY bond buying ahead of formal index inclusion for reasons of first mover advantage and ahead of the passive flows; that is, the smaller price premium, given still-low foreign ownership.  

She concluded, “For all investors - particularly those who understand the importance of local know-how, we think there’s so much that can be gained by participating in China’s immense bond market. It provides another front seat in the return to global standing of a historically important civilisation. China’s immense bond market greatly expands the investment universe and represents a new opportunity for investors.”


Read more about QIC’s study: view the full report.


QIC has been analysing the Bond Connect trading and settlement infrastructure for several months and is currently working through the process of Bond Connect registration.


The research behind this Investment Insight derives from collaboration between QIC and Ping An Asset Management (PAAMC).  The input of PAAMC’s team of 34 credit analysts is an important component of this analytical process.


PAAMC is China’s largest non-state-owned asset management company with over 20 years’ experience in China bond investing. It is a leading force in China credit analysis, and was one of the first companies in the market to establish an internal credit rating system adopting international-standard rating methodologies. Cooperation between QIC and PAAM builds upon the MOU signed between the two organisations in 2016 – itself a milestone in the developing relationship between Australian and Chinese investment institutions.


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About QIC:

QIC is a global diversified alternative investment firm offering infrastructure, real estate, private capital, liquid strategies and multi-asset investments. It is one of the largest institutional investment managers in Australia, with A$85.1 billion (US$63.6 billion) in funds under management.[1] QIC has over 1000 employees and serves more than 110 clients. Headquartered in Brisbane, Australia, QIC also has offices in Sydney, Melbourne, New York, Los Angeles, Cleveland, Fort Lauderdale, San Francisco, London and Copenhagen. For more information, please visit:

[1] As at 30 June 2018


About QIC Global Liquid Strategies:

QIC is a leading manager of global fixed interest and global absolute return strategies, as well as providing innovative overlay and implementation solutions. We currently manage A$31.6 billion (US$23.4 billion)
)[1] across global interest rate, credit, inflation, equity derivatives, commodity and FX markets.  The GLS team have a long history of successfully managing strategies that are structured to meeting changing market dynamics and clients’ needs.

[1] As of 30 June 2018


For further information, please contact:

Samantha Pankovas

BlueChip Communication

T: +61 2 9018 8602




QIC Limited ACN 130 539 123 (“QIC”) is a wholesale funds manager and its products and services are not directly available to, and this document may not be provided to any, retail clients.  QIC is a company government owned corporation constituted under the Queensland Investment Corporation Act 1991 (Qld). QIC is regulated by State Government legislation pertaining to government owned corporations in addition to the Corporations Act 2001 (Cth) (“Corporations Act”). QIC does not hold an Australian financial services (“AFS”) licence and certain provisions (including the financial product disclosure provisions) of the Corporations Act do not apply to QIC. QIC Private Capital Pty Ltd (“QPC”), a wholly owned subsidiary of QIC, has been issued with an AFS licence and other wholly owned subsidiaries of QIC are authorised representatives of QPC. QIC’s subsidiaries are required to comply with the Corporations Act.  QIC also has wholly owned subsidiaries authorised, registered or licensed by the United Kingdom Financial Conduct Authority (“FCA”), the United States Securities and Exchange Commission (“SEC”) and the Korean Financial Services Commission.

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[1] Barclays Live. 10 July 2018

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