ASIAN investors have been increasing their allocations to onshore renminbi bonds amid improving market conditions, according to a recent survey conducted by Asset Benchmark Research (ABR).

Three in five (61%) Asian local currency bond investors based outside China reported increasing their allocations to onshore renminbi bonds in the past 12 months, according to the ABR survey. Investors cited favourable market conditions (60%) and lack of renminbi volatility (44%) as the main driving factors.

“Basically, the market has stabilized a bit after the yields going up quite a lot a year before. It has calmed down and is now going back down so this supports the bond price. Also, it seems that the renminbi depreciation concern is removed. Looking the other way around, we’re seeing appreciation. So, these two factors are the main drivers,” explains a Hong Kong-based portfolio manager. “I guess we will increase our allocations in the future,” he says.

Only one in ten (10%) have decreased their investments in onshore renminbi bonds and 29% said their allocations have remained the same over the year, the study shows.

Another portfolio manager also based in Hong Kong references the relative value of the bonds compared to other debt: “China bonds look OK versus other global bond markets,” he says.

More than a third (36%) of respondents stated investor requirements motivated them to hold more renminbi-denominated bonds. “As the China onshore market is liberalized, investors have greater comfort in allocating to this market,” says a Singapore-based fund manager.

At the same time, two-in-five (40%) attributed their allocations to the recent index inclusion and only one quarter (24%) credited it to a change in regulation.

“We need to wait for further credit repricing with ongoing deleveraging and heightened regulatory scrutiny over the financial stability risk as well as the change over the monetary and fiscal stance in guiding the rate market outlook. Nevertheless, this is a good diversified opportunity against the developed markets macro trend,” says one credit head in Hong Kong.

These data are part of ABR’s Asian Local Currency Bond Benchmark Review 2018.

Methodology
The Asian Local Currency Bond Benchmark Review is conducted in the first quarter of the year. Over 300 local currency bond investors including asset managers, hedge funds, private banks, insurance funds and commercial banks from 11 Asian markets namely China, CNH, Hong Kong, India, Indonesia, Korea, Malaysia, Philippines, Singapore, Taiwan and Thailand take part.

Data sets include market penetration, market share/wallet share, buying criteria/client satisfaction, research content and the top individuals. To learn more about the Asian Local Currency Bond Benchmark Review please click here.