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Bond Connect - high point to access China

Bond Connect - high point to access China

 

Bond Connect's launch is a high point for international investors looking to access China and buy Chinese equities.

For China it is the next stage of its integration with the world’s capital markets and builds a stronger platform for sustainable growth. It also highlights a country with an appetite for steady and positive reform. In fact, it reminds me of a recent article by my colleague Ivan Nicora on how reform can boost a country’s capital markets and facilitate more opportunities.

I was fortunate to be in Hong Kong on July 1 to witness the events marking the 20th anniversary of the territory’s return to China. They ended with a spectacular and very noisy fireworks display in Victoria Harbour.

It was impressive, but you would expect nothing less. After all, it was the Chinese who invented fireworks two millennia ago.

China continues to open up to international investors

There were fireworks of a different kind on Monday July 3 with the launch of the Bond Connect link. (Find out what Bond Connect is here). I was invited to the launch, held in the Exchange Exhibition Hall, by James Fok, group head of strategy at Hong Kong Exchanges and Clearing (HKEX).

This was an important and highly symbolic moment. Bond Connect allows international investors, for the first time, to buy freely into what is the world’s third largest bond market, and it marks one more step along China’s path to market liberalisation and global integration.

Bit by bit, China is creating the conditions that allow foreign investors to invest in its markets and create more opportunities for sustainable development. The Stock Connect links with the Shanghai and Shenzhen markets already do for Chinese equities what Bond Connect aims to do for China’s government, agency and corporate debt markets.

While the market is not yet Euroclearable, the launch of Bond Connect sends a very strong signal that China has understood the need to integrate its markets with the global economy.

What does Euroclearable mean?

It is a term increasingly used for when a market adopts the legal, regulatory and other market standards that allow Euroclear to provide the same ease of access and degree of asset protection expected by international investors in any well-established market (e.g. Mexico and Peru).

China: More change, more opportunities

There is still more to be done, as Charles Li, the CEO of HKEX, made plain in his speech at the opening ceremony.

Further reforms are needed to allow repo transactions to take place abroad. And, investors need to be able to trade out of their positions in their home time zones rather than having to rely on Hong Kong to execute their trade.

All of this will go a long way to encouraging international investors to be truly comfortable when investing in China.

At the ceremony Pan Gongsheng, Director of SAFE (China’s State Administration of Foreign Exchange) and a Deputy Governor of the People’s Bank of China, said he recognised that international investors were used to relying on multi-tiered custody layers and China would have to adapt accordingly.

Initiatives like Bond Connect are close to my own heart as I continue to preach the merits of Euroclearability.

Fundamentally, we are all stewards of capital and the right structural reform. Changes like this are key for China to start reaping the benefits that come from accessing sustained, long-term investment flows.
 


Previous post by Stephan Pouyat

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Finance and financial inclusion: How economic growth could be as simple as the right partnership?

Stephan Pouyat, Euroclear's Global Head of Capital Markets and Funds Services, shares his thoughts on stewardship of capital and the importance of creating an open government bond market.

> Read Stephan Pouyat's post

Bond Connect launch a high point for international investors looking to access China - Stephan Pouyat, Head of Global Capital Markets

Stephan Pouyat

Stephan Pouyat

As Global Head of Capital Markets and Funds Services at Euroclear, Stephan Pouyat cares passionately about aligning the financial sector with moves to accelerate development among the world's emerging economies.

 

He is a firm believer that the free and efficient flow of capital brings benefits to all, from the promotion of financial reform and social development to the development of new mechanisms that aid market advancement.

 

In our increasingly interconnected world, local market success is predicated on their ability to secure capital flows and investment in physical and social infrastructure.

 

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