Bloomberg will phase in yuan-denominated Chinese government and policy bank bonds to the Bloomberg Barclays Global Aggregate index starting in April, marking the Chinese debt market’s first inclusion in a major global gauge.
The expected move grows out of Beijing’s policy changes to improve foreign access to China’s financial markets. The same day, China’s top securities regulator announced a plan to expand options for foreign investors through the country’s two main inbound investment programs.
Analysts said they expect the Bloomberg inclusion to trigger capital inflows of $100 billion into China’s $11 trillion bond market, the world’s third-largest behind those of the U.S. and Japan. Bloomberg announced the plan to include Chinese bonds in March 2018.
Several other major indexes are also considering the addition of Chinese bonds, including JPMorgan’s Global Emerging Market Bond Index and London Stock Exchange’s World Government Bond Index (WGBI), formerly owned by Citigroup Inc.
China has stepped up its efforts to play a role in global market indexes. Global equity index provider S&P Dow Jones Indices recently named Chinese A-share stocks to be added to its global benchmark indexes in September. FTSE Russell is expected to include China A-shares in its global equity benchmarks in June and said it has been looking at Chinese government bonds for inclusion in its key bond index. Another major index provider, MSCI Inc., is considering increasing the weighting of China A-shares this year.
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China is trying to entice more foreign capital by opening up markets to global investors. The nation’s bond market is ballooning, but foreign investors’ presence is still marginal, partly because of its absence from major global indexes. By the end of 2018, 1,186 foreign institutions held 1.73 trillion yuan Chinese bonds, or 2% of the entire Chinese bond market, official data showed.
“It’s a pivotal time in the development of China’s markets, and inclusion in our Global Aggregate Index is significant for facilitating Chinese market access for global investors,” said Steve Berkley, global head of Bloomberg Indices. “Our phased approach to inclusion is designed to give investors ample time to prepare for what we believe will be a positive impact on the investment community.”
Integration of Chinese bonds in the Bloomberg index will take place over 20 months, Bloomberg said. According to data on Jan. 24, 363 Chinese bonds will be included in the Bloomberg Barclays Global Aggregate, accounting 6.03% of the $54 trillion of assets tracked by the index, according to Bloomberg. When fully included, yuan-denominated bonds would be the fourth-largest currency component in the index behind the U.S. dollar, the euro and the Japanese yen, Bloomberg said.
Earlier this week, S&P Global Ratings won the first approval from Beijing to open a wholly owned credit rating unit to rate Chinese domestic bonds.