Meanwhile, BlackRock thinks investors need to invest in Chinese debt.
One of the world’s leading bond index providers is sitting out Chinese local currency bonds. Not liquid enough for shorter-term trading. Photographer: Michael Nagle/BloombergWhen will JPMorgan discover China’s bond market and include it in their massive Global Emerging Market Government Bond Index, aka the GBI-EM GD? Bloomberg Barclays Global Aggregate Bond Index added some Chinese corporate bonds priced in local currency recently. JPM is behind the eight ball. Don’t be a hater, guys.
One reason why bonds from countries like China are not included in indexes is because the market isn’t deep enough. BlackRock likes the decision to include China’s local currency government debt in the index and is buying more. Most funds tracking the index will have to make a play on China bonds anyway, especially if they want to meet or beat the index. Passive investors like BlackRock's iShares exchange-traded funds will be equal weight. Active money managers might go underweight, but they will be buyers regardless how heavy they go in.
Local currency bonds issued by the Industrial and Commercial Bank of China are now part of the Barclays Global Aggregate Bond Index. Passive emerging-market local currency global bond funds will now own ICBC debt. Local-currency Chinese bonds are set to make up roughly 6% of the global fixed-income benchmark when the phase-in is complete. At that stage, China’s currency will be the fourth-largest component in the index, behind the U.S. dollar, euro and Japanese yen.
Richard Turnill, global chief investment strategist for BlackRock, says that liquidity is definitely a concern.“Particularly for investors with shorter-term horizons,” he wrote in an April 22 commentary published on BlackRock's website titled “The domestic Chinese investor traditionally has had a “buy and hold” approach to investing.
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