The largest retirement funds in the Netherlands and South Korea have formed a landmark partnership to focus on real asset mega-deals. Their investment heads tell AsianInvestor why.
China's onshore bond market continues to appeal to global institutional investors despite a weakening yuan and the global trade tensions weighing on economic growth, a new survey shows.
Global investors have not been deterred from investing in domestic Chinese bonds, according to Invesco's global fixed income study published on Monday (March 18), even though the Chinese economy expanded last year at its slowest pace in three decades and its currency at one point fell to its lowest point against the dollar since the global financial crisis.
Foreign capital inflows into Chinese fixed income have continued, with investors primarily allocating to the market for long-term strategic reasons, the survey indicated.
For example, central banks are increasing their renminbi-denominated assets due to the Chinese currency's growing role as a global reserve currency, Ken Hu, chief investment officer of fixed income for Asia Pacific at Invesco, told AsianInvestor.
For its survey, Invesco polled fixed-income specialists and chief investment officers at 145 insurance groups, pension funds, sovereign wealth funds and private banks from across the world, with a collective $14.1 trillion in assets under management.
Institutional investors surveyed with an existing allocation to Chinese fixed income said they allocated 5% of their portfolios to Chinese bonds on average. At 9%, this allocation was highest among institutions based in the Asia Pacific region.
Invesco did not provide comparative figures from the previous year as it is the first time the study has asked specifically about allocations to Chinese fixed income.
So Hu cited corroborating external evidence to illustrate the market's continued buoyancy and international appeal. He said the China bond market registered foreign inflows of $100 billion for 2018 as a whole and that in mid-2018 foreign entities held around $209 billion in China bonds (of which 70% are Chinese government bonds), citing newswire data.
That indicates there were strong inflows into the China bond market last year and that foreign investors have looked through geopolitical issues like China-US trade tensions, he said.
More foreign capital is set to pour into the world's third-largest bond market as China continues to ease foreign access to its domestic markets and is added to some of the global benchmarks tracked by bond fund managers.
Most notable in that last respect is the Bloomberg Barclays Global Aggregate Index, which is to begin adding Chinese renminbi-denominated government and policy bank securities over 20 months, starting in April 2019.
Around one-third of the respondents in the Invesco survey said they intended to increase their China fixed-income allocations on a three-year view. North American institutions (58%) were particularly keen.
Currently, foreign ownership accounts for less than 3% of the onshore renminbi bond market, compared with 20% to 50% for most other domestic bond markets – both in developed and developing countries. So there is plenty of room for more foreign ownership.
"We expect the foreign ownership to easily rise above 10% levels in the next few years as more international bond indices are likely to add China," Hu said.
Beijing is trying to make it easier too. For example, it is planning to merge its two leading inbound investment schemes – Qualified Foreign Institutional Investor (QFII) and Renminbi Qualified Foreign Institutional Investor (RQFII) – to allow overseas investors easier access to its domestic capital market.
Investing in China can also help to diversify global instos' portfolios as China has different economic and interest rate cycles than most other bond markets, Hu added.
Eight years of AsianInvestor data on the region’s leading institutional investors reveals which asset owners are growing the fastest.
The Chinese sovereign wealth fund believes co-investments can effectively expand its investment pipeline but is looking outside the US for fund vehicles or direct investments.
AsianInvestor has launched its seventh annual Institutional Excellence Awards. We welcome submissions from outstanding asset owners, and nominations from third parties.
The Taiwanese state pension fund is inviting fund houses to submit proposals for two major five-year global mandates, as it looks to raise alternatives and rotate out poor performers.