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FTSE Russell China Bond Research Report - July 2018

Highlights

  • Appetite for China’s government bonds remains strong and is expected to grow on the back of rising yields and potential inclusion in more global indexes. On that basis, FTSE Russell is considering conducting a market consultation on the potential inclusion of Chinese bonds in the FTSE World Government Bond Index in 2018. Such an addition could potentially attract substantial inflows into China’s bond markets, according to some estimates.
  • Corporate defaults are on the rise, especially among publicly listed firms. Four of the five issuers that have defaulted for the first time in 2018 are public companies, which are typically seen as having more transparent operations and better governance standards. That’s as many defaults by public firms so far in 2018 as occurred between 2014-17.[1]
  • Due to the rising rate of defaults, many investors expect a further increase in yield premiums for Chinese credit, increasing the difficulty of some companies to refinance maturing debt. Some analysts expect spreads to widen a further 30 to 40 basis points, with the potential for more defaults to surprise investors.[2]
  • Against this backdrop, regulatory change also continues apace. April 24 saw an increase in the Qualified Domestic Institutional Investor (QDII) quota by US$8.34 billion to 24 institutions spanning asset managers, securities firms, insurance companies and trust companies – the first such increase since March 2015.[3]

 

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[1] Bloomberg. May 2018.
[2] Bloomberg. May 2018.
[3] FTSE Russell. June 2018.