Investors looking at China bonds next: PIMCO
It’s only a matter of time before global fixed income investors own more Chinese assets, particularly given the prospect of benchmark inclusion into several major global indexes and greater accessibility to the onshore Chinese bond market, according to PIMCO.
Managing director and head of Asia-Pacific, Kimberley Stafford, said China’s bond market is the third largest after the US and Japan, and it’s only the lack of accessibility to global investors that has limited foreign ownership of onshore bonds.
“We believe the inclusion of onshore China bonds into emerging market and global bond indexes will increase strategic allocations,” she said.
Stafford said CIBM Direct and Bond Connect were two relatively new programs where foreign investors could purchase onshore China bonds without quote restrictions.
Robert Mead, managing director and portfolio manager, said strong leadership in China could reinvigorate structural reforms and new macro policies have already strengthened control of the financial system and revitalised state-owned enterprises.
Mead added that despite opposition from the US, concentrated investment in research and development and mass deployment of technology in the industrial, services and household sectors could also raise productivity, which would support real GDP growth of 6.5 to 7.0 per cent.
While the market is looking positive going forward, Mead said China still faced several risks over the next few years, including debt levels and a potential downturn in property.
“The potential for a major trade conflict between China and the US has been a rude awakening for the market in 2018,” he added.
Mead said the risk of a “strategic miscalculation” was significant considering the volatile policies of the Trump administration.
Stephen Chang, executive vice president and portfolio manager, said the best opportunities for investors lie in the consumer, technology and services sectors, and the PIMCO team planned to spend more time on the ground in China looking for credit investment opportunities over the next several years.
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