The Importance of China’s Inclusion in FTSE Russell

by birtanpublished on October 2, 2020

Was expected roughly this piece of news talk to us what what sort of opportunities does something slow moving is this create for you and what doesn't what does not change well i i think i think the inclusion is important because uh they encourage the chinese market to open up um there are a lot of operations stuff that have been made easier for foreigners to to gain access but i think in terms of the increasing flow that comes in the market uh even before the inclusion we are seeing an

An increasing amount from last year cgb on average we saw 35 billion renminbi um worth of our flows this year we are looking at 50 so i think post inclusion october next year from week b that flow should increase more significantly as more investors are looking at the higher yielding market as an opportunity uh that said the how how far inland uh let's put it that way do you think uh foreign money is gonna go i mean sovereigns i would imagine quasi-sovereigns are almost a given here

Do you see foreign money going all the way into high yield i think high yield is probably a market that is that will attract capital a bit slower if you compare the credit spread between the offshore and onshore market the offshore market does offer higher credit spread for similar names as onshore so we think most of the money will flow into the interest rate bonds for now edmond what do you like then domestically in the chinese market what are spreads between local government

Bonds and sovereigns telling you um local government bond is actually the largest market in onshore the outstanding amount is higher than central government bonds but we still prefer central government bonds and policy banks because the liquidity is not great you know local government wants based and you get about between 20 to 40 basis points spread against uh government bonds but the liquidity is not compensating you for it for it

Do investors now to start need to look at the the fact that you know sovereign bonds here in china can be used as a hedge then uh if you're also investing in equities and what are the similarities with what we see in the us is that going to be sustained do you think that trend i think yes that's how our multi-asset colleagues are positioned as well i mean they do see long-bond position as a hitch to equities when equities rally so i think yeah that would be that would be a possible alternative for hedging

Instrument ed but right part of making that decision i would imagine is having an assumption on whether you think the slow-moving correction let's put it that way and china's bond market is over where do you think rates go short term we are actually more bullish on the rates outlook compared to the market we think that pboc has tightened interest rates a bit too quickly for the economy to digest despite china having shown better sequential growth compared to

Other parts of the world but we think that from from this point um of the of the economy we think that pboc has no need to continue to tighten the monetary policy so there's more room for bond yields to go lower in a couple of months from now okay uh edmund just hold on a second uh it's a time of the day when we have our daily fix out of the pboc 681.21 um is that level your midpoint for the day out of the the chinese central bank i'm just looking for my estimate here 680 do i have my estimate 681.38 so 17

Pips uh on the stronger side of the estimate edm let me bring you back so we talked about rates and obviously that affects where the currency goes short term or influences where that goes uh just to pivot here the big news yesterday corporate bond market uh the story on evergrand uh we were talking during the break you say there was nothing new markets dealing probabilities here and you know we all know if something does happen to evergrand

It's not going to be limited to evergrand how are you approaching what's the developments for that company and do you think there is a big chance this becomes disruptive in the form of higher you know wider spreads what have you yeah i think i think everyone expects evergreen to be i guess big enough it is it is big enough um a company within the property space will affect not just itself it's it's different from the tahoe default that happened a couple of months ago

If it does have if it does have a credit event then it would impact the other bonds um i think i think what most people would expect is for regulators to ease some of the policies in in the next few months when developers are facing issues especially with the ones who have shown effort to the leverage so it's hard to make a call whether they would uh default at this point in time but um the company has came out to say that the report was

Forced but everyone knows that this they do have um quite a bit of uh debt to to to reduce in in in next 12 months

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