Outlook 2024 - New Chapter of China Connectivity
In a joint webinar hosted by Bond Connect Company Limited and Standard Chartered Bank on 11 January 2024, top banking executives and industry leaders explored current trends and future possibilities for the development of the China bond market.
Opening the conference, Simon Kellaway, Global Head of Sales and Regional Head of Greater China and Northeast Asia, Finance & Securities Services, Financial Markets, Standard Chartered Bank, noted, “Foreign inflows into China onshore bonds accelerated significantly to CNY251 billion in November, an increase of almost 500% on October inflows of CNY42 billion.”
Next, Standard Chartered’s Head of China Macro Strategy, Becky Liu, gave an update on the current market situation and shared her views for the coming year. Despite the slowness of the market in 2023, she noted, “Over the last few months, we are already seeing a reversal of that. Into 2024, we’re looking for a renewed momentum from the foreign inflows perspective to around CNY230 billion for the full year.” She was expecting real GDP growth to come in at 4.8% in 2024.
In a subsequent panel discussion, Karen Ng, Managing Director, Head, China Opening & RMB Internationalisation, Client Coverage, Commercial, Corporate & Institutional Banking at Standard Chartered, noted that monthly inflows increased sharply in November 2023, reaching the second highest level on record.
Contributing to the panel, Tony Wang, General Manager of Bond Connect Company Limited, added, “The Chinese bond market continues to provide stable returns to investors. The Bloomberg China Treasury and Policy Bank Total Return Index denominated in CNY had a full-year return of 4.62%, higher than that of the Bloomberg US Treasury Total Return Index and the Bloomberg Aggregate Bond Index.”
He noted that Bond Connect’s business continued to expand, growing to reach 820 legal entities with over 4,200 trading accounts by the end of 2023. “The annual trading volume is pretty amazing. It approached RMB10 trillion last year, almost a 25% increase year-on-year, and the daily trading volume is beyond RMB40 billion every day. The monthly trading volume exceeded RMB1 trillion for the first time in August 2023.”
Panel participant Bruce Zhang, Head, Fixed Income, CSOP Asset Management Limited, commented, “If you combine expectations for moderate monetary easing with relatively proactive fiscal expansion, we remain neutral to positive to our China bond strategies’ return in RMB terms. While China’s yield is still way lower than the US, it’s worth noting that for certain holding periods – such as the upcoming 12 months – a potential positive bond price change, plus around 3% to 3.5% bond coupon, mainly paid semi-annually, could still provide a positive total return.”
Noting the volatility in Western markets, Eric Liu, Senior Vice President, Portfolio Manager, China, AllianceBernstein Hong Kong Limited, remarked, “I think one of the biggest drawbacks that we’ve seen in the developed markets over the last two years has been the volatility within governmental core rates, which haven’t actually been seen in the CGB market over the past two years. Last year, if you exclude the massive rally we saw in Q4, CGBs were actually one of the best performing in local currency terms - offering about 4.8% return.”
Henry Hung, Executive Director, Greater China North Asia Marco Trading for Standard Chartered, remarked that the Chinese Government has been taking a number of steps to simplify the process for investors to come into China. He explained, “The liquidity profile in this market, especially during the global turmoil of the last several years, has been exceptionally strong. So even when you have bumpy roads in the G10 fixed income market, you can still find decent liquidity in the China bond market. These factors are all very positive in the long term.”
Opening the conference, Simon Kellaway, Global Head of Sales and Regional Head of Greater China and Northeast Asia, Finance & Securities Services, Financial Markets, Standard Chartered Bank, noted, “Foreign inflows into China onshore bonds accelerated significantly to CNY251 billion in November, an increase of almost 500% on October inflows of CNY42 billion.”
Next, Standard Chartered’s Head of China Macro Strategy, Becky Liu, gave an update on the current market situation and shared her views for the coming year. Despite the slowness of the market in 2023, she noted, “Over the last few months, we are already seeing a reversal of that. Into 2024, we’re looking for a renewed momentum from the foreign inflows perspective to around CNY230 billion for the full year.” She was expecting real GDP growth to come in at 4.8% in 2024.
In a subsequent panel discussion, Karen Ng, Managing Director, Head, China Opening & RMB Internationalisation, Client Coverage, Commercial, Corporate & Institutional Banking at Standard Chartered, noted that monthly inflows increased sharply in November 2023, reaching the second highest level on record.
He noted that Bond Connect’s business continued to expand, growing to reach 820 legal entities with over 4,200 trading accounts by the end of 2023. “The annual trading volume is pretty amazing. It approached RMB10 trillion last year, almost a 25% increase year-on-year, and the daily trading volume is beyond RMB40 billion every day. The monthly trading volume exceeded RMB1 trillion for the first time in August 2023.”
Panel participant Bruce Zhang, Head, Fixed Income, CSOP Asset Management Limited, commented, “If you combine expectations for moderate monetary easing with relatively proactive fiscal expansion, we remain neutral to positive to our China bond strategies’ return in RMB terms. While China’s yield is still way lower than the US, it’s worth noting that for certain holding periods – such as the upcoming 12 months – a potential positive bond price change, plus around 3% to 3.5% bond coupon, mainly paid semi-annually, could still provide a positive total return.”
Noting the volatility in Western markets, Eric Liu, Senior Vice President, Portfolio Manager, China, AllianceBernstein Hong Kong Limited, remarked, “I think one of the biggest drawbacks that we’ve seen in the developed markets over the last two years has been the volatility within governmental core rates, which haven’t actually been seen in the CGB market over the past two years. Last year, if you exclude the massive rally we saw in Q4, CGBs were actually one of the best performing in local currency terms - offering about 4.8% return.”
Henry Hung, Executive Director, Greater China North Asia Marco Trading for Standard Chartered, remarked that the Chinese Government has been taking a number of steps to simplify the process for investors to come into China. He explained, “The liquidity profile in this market, especially during the global turmoil of the last several years, has been exceptionally strong. So even when you have bumpy roads in the G10 fixed income market, you can still find decent liquidity in the China bond market. These factors are all very positive in the long term.”