China's Entry to Global Bond Indexes May Be Announced This Year, BlackRock Saysby and
BlackRock has been in talks with index providers, Carle says
Tax rules, lack of currency hedging tools impede inclusion
BlackRock Inc., the world’s largest money manager, said that China’s inclusion in major global bond indexes may be announced this year, a move that could attract billions of dollars of foreign capital to the country and help shore up its flagging currency.
“We’ve been part of the discussions with various index providers, as many of the houses have been, and I think it’s possible it could happen this year,” said Gregor Carle, the head of Asia Pacific fixed income product strategy at BlackRock. Once an index provider announces inclusion, there will be a future date when this becomes “effective” and it is unlikely China bonds will actually be in the index before next year, he said in an interview.
Investors are awaiting China’s entry into global indexes such as Bloomberg Barclays indexes, JPMorgan Chase & Co.’s emerging-market bond index and Citigroup’s global debt gauge. Fang Xinghai, vice chairman of the China Securities Regulatory Commission, said last week that joining global bond indexes is not a priority at this stage and that the nation is in no rush for its shares to enter the MSCI Inc.’s benchmark indexes.
While the nation’s policy makers have allowed global funds greater access to local markets, investors still face obstacles ranging from unclear tax rules to a lack of currency hedging tools.
BlackRock’s Carle said that China’s currency moves have “probably suppressed” investors’ interest in putting their money in onshore bonds and there is potential for the yuan to continue to weaken in 2017. The inclusion of China’s bonds in indexes will change things “significantly” and while BlackRock’s business is skewed towards U.S. dollar notes, it is following the onshore debt market closely, he said.
Bloomberg LP, the parent company of Bloomberg News, owns the former Barclays Risk Analytics and Index Solutions business, including the benchmark indices, which have been co-branded as “Bloomberg Barclays Indices.”