In 2017, UBS became the first international wealth manager to establish a presence in the Qianhai free trade zone, aimed at boosting financial cooperation between Shenzhen and Hong Kong.
Evelyn Cheng | CNBC
BEIJING — Foreign investors and financial institutions are still keen to invest in China despite geopolitical tensions — and a lot more overseas money could be coming into the country, according analysts.
Differences in monetary policy and stages of recovery from the coronavirus pandemic have contributed to persistently higher Chinese government bond yields compared with those in the U.S. and Europe.
While economists note “unbalanced” recovery from the pandemic, China’s relatively faster growth — and population of 1.4 billion people — has more investors looking for opportunities.
Interest in mainland Chinese bonds has picked up, especially from foreign institutional investors, according to Jason Pang, portfolio manager of the JPMorgan China Bond Opportunities Fund. Launched last year, the fund had $124 million in client assets under management as of the end of April.
“The message hasn’t changed. The only change is the interest has changed sharply in the first quarter,” he said. Pang expects the foreign share of China’s bond market to reach 15% in the next three to five years.
If that forecast is correct, far more overseas money is set to enter China.
The foreign share of mainland China’s bond market — the second largest in the world after the U.S. — reached 3.44% in April, up from 3.2% in December, according to Natixis. The firm found that foreign investors bought a net 58 billion ($9 billion) of mainland Chinese bonds in April, more than reversing net sales of 9 billion yuan in March.
Looking ahead, Citi expects $300 billion to enter the bond market as a result of FTSE Russell officially adding China to its World Government Bond Index in October.
Greater interest in bonds than stocks
Interest from foreign institutional investors in entering the market has surged, according to Vicky Tsai, Head of Securities Services for Citi China.
Since the securities regulator in November loosened restrictions on an investment channel for overseas capital into China, demand for the relevant Qualified Foreign Institutional Investor (QFII) license has gone up, she said.
“We assisted many foreign investors in applying and obtain(ing) QFII licenses, including several top-tiered global hedge fund and private fund management companies with sizeable investments or plans,” Tsai said in an email.
More access to China’s finance industry
Finance is one of the few industries that Chinese authorities have finally opened further to foreigners —amid increased political tensions with the U.S.
Data from Rhodium Group released this week showed U.S. foreign direct investment in China dropped by roughly a third in 2020 from a year ago to $8.7 billion, the lowest since…