China's $8 Trillion Bond Treasure Spurs Global Funds to HireBy
BlackRock has hired for local credit research in China
‘Game of managing’ yuan fixed income moving onshore: Z-Ben
Speculation that China’s 56.3 trillion yuan ($8.2 trillion) bond market is about to go more global is spurring investment funds to hire in the nation.
A central bank official said at the end of last year that China will create conditions for the inclusion of yuan debt in global indexes. BlackRock Inc. has said inclusion could be announced in 2017, and that the firm has hired for credit research in the nation. Invesco Ltd. says such a development may come in the next 12 months, and also aims to expand in the country.
Adding Chinese notes to global indexes including those from Bloomberg Barclays, JPMorgan Chase & Co. and Citigroup Inc. would bring cash into the nation from yield-hungry investors from New York to Tokyo. Managers of that wealth will need to navigate rising defaults and local ratings that many have questioned. Investment firms also want to sell more products to a growing legion of wealthy Chinese investors, after greater market access was allowed.
“We are seeing increased interest among global asset managers to develop an investment capability for the onshore Chinese bond market,” said Nick Aylwin-Foster, who runs headhunting firm Sheffield Haworth’s asset management practice for Asia. “Within fixed income, hiring is primarily into the credit research teams.”
BlackRock has hired a couple of people in Shanghai who focus on credit research in the domestic bond market, according to Gregor Carle, head of Asia-Pacific fixed income product strategy.
“We continue to build that coverage because we see this greater opportunity set coming out of China, and of course, the potential index inclusion that’s further down the line,” he said.
Fidelity International is building out its investment team in Shanghai, Jackson Lee, country head for China, said in January. A spokeswoman for the money manager said there is no update to that plan.
Amid shifting regulations and hiring challenges, many funds are still deciding on such a move. They must weigh downsides that include “a gap between when you commit to a new market and when you actually start seeing returns,” according to Aylwin-Foster at Sheffield Haworth.
Timing on index inclusion is also uncertain. Joining global debt indexes isn’t a priority at this stage and the nation is in no rush for its shares to enter the MSCI Inc.’s benchmark indexes, Fang Xinghai, vice chairman of the China Securities Regulatory Commission, said in January. The People’s Bank of China and other departments will work to improve rules to give foreign investors easier access to the interbank bond market and create conditions for the inclusion of yuan debt in global indexes, Ma Jun, chief economist of the PBOC’s research bureau, said in December.
Still, China presents a unique opportunity for fixed-income fund managers. Foreign holdings account for only about 1.4 percent of the nation’s interbank bond market, making it “one of the most untapped opportunities” in global asset management, according to Nicholas Britz, senior associate at Shanghai-based consulting firm Z-Ben Advisors.
Fidelity International said in January that its wholly foreign-owned enterprise in Shanghai became the first global asset manager to register with the Asset Management Association of China as a private fund management company. The qualification allows the firm to create onshore investment products for Chinese institutional and high-net-worth investors for the first time, it said in a statement.
Andrew Lo, chief executive officer at Invesco Asia-Pacific, said in an email interview that the firm has plans for its own wholly foreign-owned enterprise and aims to register it with AMAC to become a private fund management company. “The WFOE will provide on-the-ground support to our Hong Kong-based Greater China investment team that is offering Chinese investment products to global investors,” said Lo.
Invesco already has a joint venture with Chinese partners including Great Wall Securities Co. and Lo added that the firm is “very committed” to expand its presence in the country. He said he sees “growing demand” from Chinese institutions to diversify fund managers and investment strategies.
“The game of managing renminbi fixed income is very much moving to the onshore market,” said Britz at Z-Ben Advisors. “Assuming you can build out an effective renminbi credit team, you’ll definitely be pulling ahead of your global rivals.”
- Bloomberg LP, the parent company of Bloomberg News, owns the former Barclays Risk Analytics and Index Solutions business, including the benchmark indexes, which have been co-branded as “Bloomberg Barclays” indexes.
- Bloomberg Barclays overhauled its China fixed-income gauges and started a Global Aggregate + China index on March 1, while stopping short of adding the nation to major benchmark indexes