European institutional investors expect increased inflows into Chinese fixed income, survey finds

Written by Adam Cadle

30/03/2021

European institutional investors predict that inflows into Chinese fixed income will increase in 2021, according to a survey by NTree.

Pureprofile on behalf of NTree conducted the survey of 150 investors across the UK, Switzerland and Germany in February 2021. The investors have a combined total assets under management of $292.8bn, with 63% expecting foreign investment into the asset class to increase in Q1 2021, compared to Q4 of 2020.

International investors currently own about 3% of China’s onshore bonds, according to the Chinese central bank. The research reveals that 17% of institutional investors predict that this will increase to 5% this year, with 35% and 32% expecting it to reach this in 2022 and 2023 respectively.

Three quarters (76%) of respondents agreed with the view that the expected increase in foreign investment in the Chinese fixed income market this year will be driven by monetary and fiscal policies in developed markets in relation to COVID-19, the continued growth in negative yields in Western fixed-income markets and the fact that major bond indices are increasingly adding Chinese debt to their compositions.

Eighty per cent also agreed that there will be an improvement in liquidity, ease of trading and market access in the Chinese bond market over the next three years as it catches up with more developed markets.

NTree CEO Timothy Harvey said: “The Chinese fixed income market is becoming more attractive as it matures and as investors look to new sources of yields. The outlook is very positive for the asset class with significant inflows of foreign investment predicted.”

When it comes to investing in Chinese funds, 77% of institutional investors expect China-based investment teams to have the edge over those based in the West.

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