The Daily Update - Happy Anniversary Bond Connect!

Last week we put a piece out on the Bond Connect, and today marks the first year anniversary since its launch. 

Foreign institutions who can access Chinese Government bonds via Bond Connect now total around 315; although the aggregate amount still represents less than 2% of the Chinese bond market. Those numbers are, however, growing rapidly and will likely accelerate further once UCITS funds are given approval.

The bond connect project is already a major success in our view, given the now much larger number of participants via this scheme. However, the absolute value of foreign investment remains very small relative to the economic importance of China. The fact that many firms have bigger investments in US high yield and peripheral European bond markets than they do in Chinese government bonds remains perhaps the biggest mystery in global financial markets. This is particularly perplexing in light of the fact that the US will almost certainly enter recession within the next couple of years and under those conditions it is obvious to us that Chinese government bonds will SIGNIFICANTLY outperform as the internationalisation of the renminbi continues.

We will continue to cover the Bond Connect story in tomorrow's daily.

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