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Linking Mainland HK Bonds begins trading south as a milestone in financial opening

PBC Photo: Xinhua

The long-awaited southbound portion of the bond trading link between mainland China and Hong Kong will begin next week, officials said Wednesday, ending the tension of the past four years following the availability of northbound trading.

Hailed as a landmark step in expanding the mutual opening of financial markets, the announcement aims to allow mainland investors to diversify their portfolios and facilitate foreign investment in the mainland bond market, industry insiders said optimistically about Hong Kong and its growing profile in the global financial world.

The southbound leg is slated to start on September 24th to enhance the mutual opening of the country’s bond market and consolidate Hong Kong’s role as a bridgehead and hub between the mainland and global markets, strengthening the city’s integration into the major development strategy of the city The Central Bank of the People’s Bank of China (PBC) said on Wednesday.

The annual southbound trade quota under Bond Connect is 500 billion yuan ($ 77.72 billion) with a daily quota of 20 billion yuan, said the PBC, which pledged the quotas in line with cross-border cash flows revise.

The long-awaited southbound leg came after northbound trading began in July 2017. Prior to the northbound availability, foreign investor holdings in the country’s bonds were valued at around 850 billion yuan, PBC data showed. The number has grown to 3.8 trillion yuan so far, with an average annual growth rate of over 40 percent.

Overseas investors hold about 1.1 trillion yuan in bonds under the south-facing branch, with cumulative transactions reaching 12.3 trillion yuan over the past four years, the central bank said, adding that 78 out of 100 worldwide leading asset management institutes at the trade.

Trading northward has proven fruitful since its inception, effectively accelerating the advance of foreign investment into China’s bond market. The announcement of southbound trading bodes well for opening up the bond market in both directions and satisfying mainland investor demand for portfolio diversification, a Citibank China spokesman said in a statement broadcast to the Global Times on Wednesday. The US bank is one of the official Bond Connect dealers.

“The new initiative will make it easier for mainland institutional investors to allocate global bonds through the Hong Kong market, while encouraging the mutual opening of the mainland and Hong Kong financial markets,” said Sun Yu, vice chairman and CEO of Bank of China (Hong Kong). said in a statement to the Global Times.

The introduction of a bond link to the south is an indication of national support for Hong Kong’s development, according to Sun, and notes that the move would likely increase cross-border use of the yuan.

Dong Shaopeng, Senior Research Fellow at the Chongyang Institute for Financial Studies at Renmin University of China, said the introduction of the south-facing portion of the Bond Link Mechanism was a “gift” from the mainland to Hong Kong ahead of the national holiday. and it is in line with mainland policy to maintain financial stability.

“Mainland investors have an overwhelming need to invest in financial products of various categories and regions. As Hong Kong’s economic and social order gradually recovers, its financial markets also need the support of capital and mainland investors, “said Dong, adding that expanding the current bond link mechanism is a” natural step “.

He also said improving the bond link mechanism will further strengthen Hong Kong’s position as a global financial center.

“Hong Kong is now in a transition phase. It used to rely on mainland assets, but now the trend is becoming clearer for mainland capital to invade Hong Kong. As a result, the interaction between Hong Kong and the mainland is also growing, ”he said.

Zhou Yu, director of the international finance research center at the Shanghai Academy of Social Sciences, said the bond link would also encourage mainland financial institutions to “go global.” For example, more mainland securities firms are likely to open branches in Hong Kong and invest in Hong Kong’s bond markets.

In addition, Bloomberg announced on Wednesday, along with the China Foreign Exchange Trade System (CFETS), the introduction of new solutions on 24 investors, “said a statement sent to the Global Times.

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