China interbank bond market seeing “massive” investor demand

Most applications are coming from European and US asset managers, with one firm planning to register 300 funds to invest in the market, CIBM settlement agents tell AsianInvestor.
China interbank bond market seeing “massive” investor demand

China’s recently opened interbank bond market (CIBM) is attracting massive demand from investors, with at least 30 registrations already completed and many more in the pipeline, executives at CIBM settlement agents told AsianInvestor.

The country's State Administration of Foreign Exchange said yesterday that there had been over 30 CIBM registrations of foreign institutions and products. They cover both institutions and funds, as the scheme requires registration of individual products. 

Most of the applications are from European and US asset managers, which have been very bullish about Chinese bonds, said Barnaby Nelson, head of investors and intermediaries for Northeast Asia at Standard Chartered, one of the CIBM settlement agents.

An executive at another settlement agent said his bank had a big pipeline of applications, largely of asset managers, comprising roughly 40% from Europe, 40% from the US and 20% from Asia.

Asian fund houses may be more cautious because they already have mainland debt exposure and are not currently looking to increase it much, suggested Nelson.

Hundreds of products in the pipeline

Big asset managers are looking to access the $6.7 trilion market in stages. For example, one firm is planning to register a total of 300 funds, said Nelson, “so we are talking about a large number per manager”.

About half of the fund houses registering products for the CIBM already have access to mainland assets via the renminbi qualified foreign institutional investor (RQFII) and/or QFII schemes, he noted. The other half are new entrants to China that do not already hold any mainland assets. 

Once asset managers register their products, they are funding positions immediately, said Nelson, adding that most are impatient to get access.

He does expects to see a dip in global demand from the current level in the next six months.

Others confirm strong momentum for the programme. There have been “very positive inquiries” from European institutional investors since the announcement of the new rules, said David Li, Hong Kong chief executive of CACEIS, the asset servicing arm of French bank Credit Agricole.

Swift registration

The People’s Bank of China (PBoC), which is responsible for approving CIBM applications, is helping facilitate the programme by keeping the registration process short, said Nelson. The central bank says the process takes a maximum of 20 working days, he added, but four or five days is typical in practice.

PBoC introduced the registration system in July last year for central banks, sovereign wealth funds and supranational/quasi-government institutions. It extended the programme to institutional investors such as insurers and asset managers in February this year.

Central banks account for about one third of CIBM registrations, with financial institutions accounting for the rest. 

UK-based Insight Investment Management, a subsidiary of US group BNY Mellon, in June became the first foreign fund house to register for the new programme. The firm registered six funds, which between them plan to invest Rmb2 billion ($303 million) into the market, as reported.

In the same month, the Monetary Authority of Singapore became the first central bank to designate include renminbi in its foreign reserves.

To access the CIBM, investors must appoint an onshore bank as a local settlement agent. There are 47 eligible firms, of which four are China branches of foreign banks: BNP Paribas, Deutsche Bank, HSBC and Standard Chartered.

The CIBM programme is supervised by PBoC’s Shanghai head office. PBoC did not respond to queries by press time.

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