The next twelve months could turn out to be a pivotal year for China’s capital markets, the largest in the Asia-Pacific and the world’s third largest bond market. The proposed inclusion of Chinese yuan bonds in the Bloomberg Barclays Global Aggregate Index, phased in over a 20-month period starting in April 2019, could further accelerate the participation of foreign investors.
Ahead of the index inclusion, international asset owners and managers have stepped up their activity. Tradeweb, the electronic trading venue linked to Bond Connect, recorded a healthy boost to trade levels, with an uplift of over 40% in the average daily volume, which accrued to US$0.5 billion each day for the 12-month duration end of December 2018. The number of approved overseas institutional investors on Bond Connect reached 503 at the end of 2018, a 74% increase from the 288 global institutional investors registered at the end of Q1 2018.
While there is much reason for optimism, the integration of China’s capital markets within the global financial system comes at a particularly challenging time. The ongoing China-US trade war has added to market uncertainty. The efforts by China to de-risk its financial system (especially in pursuing deleveraging) as it transitions away from fixed asset investment face headwinds. The slower global growth, with the World Bank cutting its forecast to 2.9% in 2019, is keeping investors on their toes and softens sentiment.
These short-term worries, however, do not detract from the longer-term expectation that once these issues are addressed, the region is on track to become one the foremost centres of economic activity in the coming two decades. This also means that capital markets will become an integral part of financing among corporates operating in this region while presenting tantalizing opportunities for investors looking at return and diversification.
As a share of G3 primary issuance, Chinese issuers now account for 60% of activity year-on-year. A study published in January 2019 by the Global Financial Markets Association notes that even based on relatively conservative assumptions, capital markets located in the Asia-Pacific region are set to experience the most rapid growth over the coming decade. Furthermore, Asia’s share of global capital markets activity will rise to just under half over the next 20 years from around one-third today. Much of what’s behind the region’s rise is driven by China, which accounts for 40% of Asian capital markets activity. As a share of G3 primary issuance, Chinese issuers now account for 60% of activity year-on-year.
09.00 Asset Events Speaker - Welcome remarks
09.10 Asset Events Speaker - Morning keynote address
09.30 Asset Events Panel - Panel: Financing and investing opportunities in the capital markets
China’s economic development has entered a new phase, with lower rates of expansion the new normal, highlighted by a yearly growth rate of 6.7% by the end of the third quarter in 2018. Uncertainties such as Sino-US trade tensions and ongoing deleveraging have cast a shadow over China’s economic development. Bond defaults are isolated in nature but are occurring regularly, which may presage challenging times ahead. With the ongoing restructuring and adjustment of China’s economy, how will capital markets evolve?
10.10 Networking and coffee
10.40 Asset Events Panel - Panel: Index inclusion - Internationalization of the China bond market
Yuan-denominated debt is set to be included in Bloomberg Barclays Global Aggregate Bond Index this April 2019. This move will further open up China’s debt market and is expected to boost foreign holdings of Chinese bonds. While global investors welcome the move, issues surrounding market infrastructure, liquidity and transparency remain.
11.20 Asset Events Panel - Pandas: Chomping on the green shoots
Rule changes announced by the People’s Bank of China are refocusing international issuers’ attention on raising yuan-denominated bonds in the interbank bond market. Non-financial institutions based overseas may now raise funds onshore through panda bonds. Guidelines on green pandas - panda bonds whose proceeds are used for green projects - have also been launched. But will these new rules be able to unleash the full potential of the panda bond market?
12.00 Asset Events Panel - In conversation: LGFVs – ready for a comeback?
China has implemented measures aimed at improving transparency, liquidity and management of local governments. Such measures have set the stage for a more sustainable path as local governments now try to balance economic growth and debt management. Amidst this backdrop, local government financing vehicle (LGFV) bonds are gaining favour among investors. However, issues concerning credit quality, Sino-US trade tensions as well as China’s economic restructuring continue to pose challenges to LGFVs. How will LGFV bonds fare in the next 12 months?
13.30 Asset Events Speaker - Afternoon keynote address
14.00 Asset Events Panel - Panel: Resetting the Belt and Road Initiative
China’s ambitious Belt and Road initiative has sparked intense debate even as it continues to grow its activity in the more complex markets along the Old Silk Route. Financing is a key area of interest, particularly the need for increased
transparency. Is the answer to leverage on the capital markets, given the long-gestation nature of several of these infrastructure projects?
14.40 Networking and coffee
15.10 Asset Events Panel - Panel: Green finance
China’s green finance market continues to push ahead. However, enthusiasm is wavering amongst issuers due to higher issue costs and unclear criteria for obtaining third-party certificate for green bonds. Given the backdrop of China’s economic transformation and structural adjustment, how could green finance underpin economic activity towards sustainable and sound development?
15.50 Asset Events Panel - In conversation: ABS & structured financing
From its fledgling roots just over a decade ago, China’s asset-backed security (ABS) market is now the largest in Asia. It is not just asset classes that are growing, the application of technology could change the way new issues are structured. What lays ahead for the ABS market in 2019?
16.20 Asset Events Speaker - Closing remarks
16.40 Asset Events Cocktails - Networking and cocktails
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