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Allocating to China fixed income

How should global investors think about RMB bonds now that the market has come of age?
16 April 2021
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    Key takeaways

    • The opportunity set in Chinese bonds has grown dramatically for global investors in the past decade. But it is only in recent quarters that the unique nature of this market has grabbed the attention in terms of providing considerable value on a global portfolio basis
    • There is no ‘one size fits all’ strategy and investors should carefully examine their holistic investment objectives and identify what they are aiming to capture by investing in Chinese bonds. It often depends on where the investor considers Chinese bonds fit into their investible universe, but the range and diversification characteristics of this market can provide potential benefits in a number of ways
    • Similarly, hedging the RMB currency risk to their home currency may be desirable for some investors and not for others, depending on their objectives and risk tolerance. The RMB-USD exchange rate is relatively stable and therefore the degree of currency risk a USD based investor takes is unusually manageable
    • Chinese government bonds in USD terms have acted as something of a safe haven during times of volatility in global markets and do not seem to behave like an emerging market
    • In a world of high correlation and scarce value, we believe that the opening up of the Chinese bond markets is a very welcome development for global investors and that almost all will benefit from including this asset class in their investible universe in some way