Chinese bonds undervalued by foreign investors for the 5th consecutive month

The slowing economy prompted foreign investors to abandon Chinese bonds for a fifth consecutive month.

China’s $20 trillion bond market has suffered continued outflows of foreign capital since February amid growing geopolitical tension and persistent epidemics of Covid-19.

In June, foreign holdings of yuan bonds traded on China’s interbank bond market totaled 3.57 trillion yuan ($527.5 billion) at the end of June, up from 3.66 trillion yuan a month earlier, the Bank said on Friday. popular in China.

The yield on Chinese 10-year central government bonds is around 12 basis points lower than that of their US counterparts, compared to a premium of almost 130 basis points at the end of last year.

More turmoil in China’s property markets, where buyers are refusing to pay off mortgages on unfinished apartments (in several hundred projects), could further sour sentiment among foreigners, Iris Pang, economist at ING China said.

But with China’s fiscal health better than other major countries and clouds of growth hanging over the rest of the world, she said outflows could slow and the yuan could recoup some of that. which he had lost this year.

The pace of outings has already slowed and Shanghai’s lockdown ended last month. “The US recession story is brewing and China is starting to recover. I don’t think capital outflows will last very long,” Pang said.

China also launched stimulus measures to help an economy that grew only 2.5% in the first half.

China took new steps this month to attract foreign bond investors, saying it would lower service fees, improve access to overseas currency hedging and streamline the account opening process. .

Foreign holdings of Chinese bonds more than tripled from 2019 to 2021, but remain relatively low, accounting for 2.9% of the interbank debt market, data showed on Friday.

  • Reuters, with additional editing by George Russell

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george russell

George Russell is a Hong Kong-based freelance writer and editor who has lived in Asia since 1996. His work has appeared in the Financial Times, Wall Street Journal, Bloomberg, New York Post, Variety, Forbes, and South China Morning Post. . .

Robert D. Coleman