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China, Hong Kong launch long-awaited bond connect scheme
[HONG KONG] China and Hong Kong launched a long-awaited "Bond Connect" programme on Monday that links China's US$9 trillion bond market with overseas investors, the latest step in Beijing's efforts to liberalise and strengthen the country's capital markets.
HSBC Holdings said it had completed its first trade on the scheme as it went live on Monday.
The launch of the scheme was timed to coincide with the 20th anniversary of Hong Kong's handover to Chinese rule and trading will initially commence "Northbound", meaning foreign investors will be able to buy and sell Chinese bonds.
"The speed in which policymakers have worked towards opening China's domestic bond market in recent months indicates to us that further developments are likely," Goldman Sachs said in a report on Monday.
"We continue to hold the view that there could be more than US$1 trillion of additional global fixed income investments to be allocated to China domestic bonds over the coming decade."
Foreign investors hold less than two per cent of China's bond market, the world's' third-largest.
The authorities have not yet indicated when Chinese investors will be able to trade Hong Kong and overseas bonds, known as "Southbound" trading.
Access to China's bond market through the programme will be restricted to overseas institutional investors such as banks, insurers, brokerages and investment funds. Trades will not be subject to quotas.