Chinese debt market to see $80bn inflow in 2019 – Morgan Stanley

Foreign demand, from both active and passive managers, for Chinese government bonds should help fund the country’s present account deficit next year and stablilize the yuan, according to Morgan Stanley analysts.

They wrote in a note seen by Bloomberg that China may see about $80 billion of inflows into its debt market in 2019 when yuan-denominated bonds get added to a widely tracked index. The market may see further $140 billion of inflows if two other bond indices follow suit, the note said.

The analysts added that while foreign ownership remains very low, it will grow over the long term to more than $1 trillion from the current $240 billion if the yuan becomes more widely adopted. Statistics showed that last month foreign investors trimmed their holdings of Chinese bonds for the first time since February 2017.

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China has been gradually opening up its capital markets to spur inflows, as its current account surplus narrowed and domestic fund outflows picked up amid the depreciation in the yuan. Beijing was stepping up the pace of reform in its $12 trillion bond market, seeking to lure more foreign investment. The country’s authorities have earlier introduced a range of new rules designed to help the nation’s bonds gain entry into major international indices.

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