Time for Diversification into Chinese Bonds · 2020-05-13 · Bond Connect Webinar, 27th April 2020 All Eyes on China Providing the local news, practitioner views & benchmarks for

Time for Diversification into

Chinese Bonds

Date: 27 April 2020

2

House Keeping

1. All participants are on a listen only mode during the call of the webinar.

2. After the presentation, there will be a Q&A session. For any questions for the speakers, please type it in Q&A Box on the bottom right corner. Speakers will discuss in Q&A session at the end of the event.

3

House Keeping

3. The webinar is being recorded. The presentation slides and play back will be available on BCCL Website later in due course. https://www.chinabondconnect.com/en/Newsroom/Events/Zooming-Into-China-S-Bond-Market-Mini-Seminar---Bnp-Paribas.html

4. If any participant requires assistance at any time, please send a message to the host through the chat box in this webinar platform.

Bond Connect Series Event

HOST : MS. PHOEBE LEUNG

Head of Sales & Marketing

Bond Connect Company Limited

5Source: BCCL as of Apr 27th, 2020

Rising Impact of Bond Connect as Major Investment Channel

BC Filing continues to gather speed74 out of Top 100 Global AM Companies Onboarded

6

A Changing & Expanding Investor Base— Jurisdiction

Spanning across Investors in 32 Jurisdictions

Source: BCCL as of Apr 27th, 2020

7

Accelerating Trading Activities via Bond Connect


8

Jul 3 2017

LAUNCH

MilestonesNo. overseas investors approved(Filing notice)

Nov 7 2018Tax exemption clarification of CIT and VAT for interest income effective Nov 7 2018 to 6 Nov 2021

Nov 29 2018Bloomberg announced as 2nd BC trading platform

Mar 23 2018Bloomberg Barclays Index inclusion announcement, starting Apr 2019 and phased in over 20-month period, subjected to tax clarification, DVP, block trade

Architecture design of Bond Connect

Aug 2015

Jul 3 20181st Anniversary announcements of BC enhancements, e.g. Block Trade, Tax, DVP, DerivativesBC Dealers up from 24 to 34BCCL fees— 50% reduction

Aug 27 2018Real-time delivery-versus-payment (DVP) Launched

Aug 30 2018Proposal of a 3 year CIT & VAT exemption

Aug 31 2018Tradeweb Block trade function launched

Mar 2017Li Keqiang pledged bond market connect scheme in 2017

Jun 2017CFETS & HKEX announces launch of Bond Connect

Bond Connect— A Constantly Evolving Scheme

Jan 17 2019• China Bond Market Intl Forum:

Development, Reforms & Opening-up • Bloomberg BC TSOX Go-Live

Jan 31 2019Bloomberg confirms China bonds inclusion effective April 1, 2019

Feb2019Launched Primary Information Platform

Mar 2019• Irish UCITS & AIFs approved for BC• PBoC approves mandates filing

Apr 2019• NCD primary subscription service• Settlement cut off time extension

Apr 1 2019Official inclusion of China bonds in Bloomberg Barclays Index

June 2019• Block Trade allocation: 30 → 50 a/c• Backup Trading Procedures launched

Jul 3 2019Bond Connect Anniversary Summit, enhancements e.g. Adds 13 BC Market makers to 47, Price indication launched

Aug 2019• Extension of settlement cycle to T+3

for international investors

Sep 2019• JPMorgan confirms China bonds

inclusion effective Feb 28, 2020

Dec 2019• Bond Connect E-Filing Launched

JUN

1000

Feb 28 2020Official inclusion of China bonds in JPMorgan IndexGBI-EM Global Diversified (GBI-EM GD), GBI-EM Global, GBI-EM (Narrow), GBI-EM (Narrow) Diversified.Weighting capped at 10%

NOV

200MAY

300DEC

500JAN

600

Mar

1944

NOV

1500


2020

Mar

1900

2019201820172015

Jan

1700

March 2020• Extended Settlement

Cycles & Settlement Amendment available

April 2020• Addition of 9 BC

Dealers to total 56

May 1 2020 • Bond Connect E-

Filing Global Implementation. Paper submission phased out

9

This document and the information contained herein may not be used other than by the person to whom it is addressed or distributed to and may not be reproduced in any form or transferred to any person. The information contained in this document is for general informational purposes only and does not constitute an offer, solicitation, invitation or recommendation to buy or sell any securities or to provide any investment advice or service of any kind. This document is not directed at, and is not intended for distribution to or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation or which would subject any of Hong Kong Exchanges and Clearing Limited (“HKEX”), China Foreign Exchange Trade System & National Interbank Funding Centre (“CFETS”), Bond Connect Company Limited (“BCCL”), China Central Depository & Clearing Co., Ltd (“CCDC/ChinaBond”) or Shanghai Clearing House (“SHCH”) (together, the “Entities”, each an “Entity”), or any of their affiliates, or any of the companies that they operate, to any registration requirement within such jurisdiction or country.

No section or clause in this document may be regarded as creating any obligation on the part of any of the Entities. Rights and obligations with regard to the trading and settlement of any securities effected on the CFETS, including through the Bond Connect, shall be set out solely in the applicable rules of the Entities, as well as the applicable laws, rules and regulations of Mainland China and Hong Kong in effect from time to time.

Although the information contained in this document is obtained or compiled from sources believed to be reliable, none of the Entities guarantee the accuracy, validity, timeliness or completeness of the information or data for any particular purpose, and none of the Entities or the companies that they operate or their respective affiliates, agents, nominees, representatives, officers and employees shall accept any responsibility for, or be liable for, errors, omissions or other inaccuracies in the information or for the consequences thereof. The information set out in this document is provided on an “as is” and “as available” basis and may be amended or changed in the course of implementation of Bond Connect. It is not a substitute for professional advice which takes account of your specific circumstances and nothing in this document constitutes legal advice. If you are in any doubt about the contents of this document, you should seek independent professional advice. None of the Entities or any of the companies that they operate or their respective affiliates, agents, nominees, representatives, officers and employees shall be responsible or liable for any cost, expense, loss or damage, directly or indirectly, howsoever caused, of any kind, arising from the use of or reliance upon any information provided in this document, or in the presentation given.

Disclaimer

Time for Diversification into Chinese Bonds

Introducing the Asia Times Financial China Bond 50 Index,

the world’s first liquid indices for accessing

mainland Chinese corporate bonds

Bond Connect Webinar, 27th April 2020

www.asiatimesfinancial.com

1. Introduction: Chinese Connections & Needs

Brett McGonegal, Co-Founder of Asia Times Financial

Time for Diversification into Chinese Bonds: Introducing the Asia Times Financial China Bond 50 Index,

the world’s first liquid indices for accessing mainland Chinese corporate bonds



2. Asia Times Financial

Media, Indices, Benchmarks & Access

Evan Kalimtgis, Co-Founder of Asia Times Financial





2. Asia Times Financial Media, Indices, Benchmarks & Access. Evan Kalimtgis, Co-Founder of Asia Times Financial

Bond Connect Webinar, 27th April 2020 www.asiatimesfinancial.com

Introducing Asia Times Financial

Delivering news, analysis & tools to invest in Asia's largest local markets

• Yesterday: Lack of comprehensive & credible information and data meant international

investors have had to ignore many higher-yielding Asian market sectors.

• Today: Asia Times Financial’s innovative media platform transforms this with high profile local

partners, tailored benchmarks and credible media

• Sister publication of Asia Times that has provided independent and accurate local, regional and

global news, for and about Asia, since 1995

• Asia Times Financial (ATF) launches in April 2020 as a specialist financial media platform to provide

the news, analysis & tools to understand and invest in Asia's largest local markets



Introducing Asia Times Financial

Delivering news, analysis & tools to invest in Asia's largest local markets


Launched 7th April, 2020



All Eyes on ChinaProviding the local news, practitioner views & benchmarks for Mainland investment

• China Focus: On an area key to China’s stability and growth – increasing the liquidity and

tradeability in its US$14 trillion onshore bond markets

• Global Interest: In this period of zero and negative yields, investors have turned to China's deep

and relatively untapped mainland bond markets.

• Local Content & Credibility: Content sourced from the PRC in real-time on earnings, ratings,

market moves and regulatory changes plus access to banks, liquidity providers, ratings agencies,

and brokers provides local expertise and understanding

• Unlocking Access: A lack of credible news, tradeable indices & international ratings, has resulted

in a near total lack of global access products to Chinese Fixed Income


Time for Diversification into Chinese Bonds:

Asia Times Financial IndicesA New Approach for Providing the Media Benchmarks for Local Markets

• Asia Times Financial's Goals: Transparency, Tradability, Strategic Relevance

• Tailored Rule-Based Approach: Suits the specifics of the local market with a focus

on the most strategic liquid names and sectors

• Key Local Methodology Advisors: Pengyuan Ratings, Saxo Bank, CCBI, plus

regular input from global research houses including Marco Polo Securities

• Index Family: The ATF China Bond 50 Index supported by five local China

component sub-indices. Will be followed by other Asian local investible indices

• Supporting Media: ATF media network provides news coverage and analysis related

to the indices to provide further deeper understandings of these markets and issuers



Time for Diversification into Chinese Bonds:

Why China Now?ATF launches as investment world looks to learn more and diversify

• Relative Stability and Diversification: China provided relative stability in the credit events

and disruptions in the West

• Deep Markets: The world requires income from the largest untapped source of yield in

global markets

• China Priorities: China and local markets are being made increasingly accessible by

regulators and institutions to global investors


3. ALLINDEX’s Unique Methodology &

Market Background

Dr. Christian Kronseder: ATF Index creator

& CEO of AllIndex AG





Bond Indices Made for Trading

➢ Focus is on liquidity and tradability

➢ Simple and transparent set of selection rules

Rating

Time to Maturity

Size

Liquidity

One Bond Per Issuer

Rule Book to select

Onshore Bonds

Investable Chinese

Onshore Index



3. ALLINDEX’s Unique Methodology & Market Background. Dr. Christian Kronseder: ATF Index creator & CEO of AllIndex AG

Flagship Index ATF CBM50 Built Bottom Up

➢ Four Subindices: Corporates, Enterprise, Financials and Local Government

➢ Top quantiles used to create cross sectional index with 50 constituents

➢ Life since 2020-01-01 / ISIN CH0544338400

➢ Average yield: 3.86% / Average time to maturity: 4.52y

ATF CBM 50

Local Rating Sectors Time to Maturity




Backtested and Life Data of ATF CBM50

Backtested Life data

Lockdown WuhanUS Fed intervention

ATF CBM 50

High Yield

Investment Grade

Data: ALLINDEX, Tiingo




4. Strategy, needs & flows

Andrew Brown, Chief Investment Officer

of HakuCapital Global Investment Advisers


the world’s first liquid indices for accessing mainland Chinese corporate

bonds



China bond market – necessarily developing rapidly

✓ Diffuse risk away from banks to reduce systemic risk

✓ Amend and extend corporate debt to better align amortization schedules with borrower cashflows

✓ Create long duration asset pools necessary for pension reforms

✓ Develop a better risk/yield array across the curve

✓ Facilitate much needed capital inflows as move toward current account deficit


4. Strategy, needs & flows. Andrew Brown, CIO of HakuCapital Global Investment Advisers

9%

10%

40%8%

4%

3%

20%

5%

Treasury

Municipals

Central bank bill

NCD

Policy banks

Commercial banks

Non-bank financialinstitutions

Non-financialcorporates

Gov't sponsoredagency

ABS

Others

9%

17%

23%

11%2%

5%

29%

Non-financial corporates

RMB3.3tn (US$1.3tn), 20%

19%

2%

46%

13%

16%

2010:

RMB9.4tn

(US$1.3n)

2019:

RMB45.2tn

(US$6.5tn)

2015:

RMB23.2tn

(US$3.3tn)

Note: 1. Non-financial corporates includes Enterprise Bonds, Corporate Bonds, Medium Term

Notes, Commercial Papers and Private Placement Notes; 2. Use USD/RMB=7 to calculate

Source: Wind

Flow: China’s Bond Issuance – growing and diversifying

➢ Bond market depth and breadth rapidly developing (more products/better mix)

➢ Corporate bond issuance is now close to 1/5 of all bond issuance ($1.3tn in 2019), up 35% in only 4yrs. Pension reforms will drive total bond issuance further


RMB3.3tn (US$0.21tn), 16%


RMB3.3tn (US$0.96tn), 29%%



17%

22%

0%

11%16%

5%

2%

20%

4%

Treasury

Municipals

Central bank bill

NCD

Policy banks

Commercial banks

Non-bank financialinstitutions

Non-financialcorporates

Gov't sponsoredagency

ABS

Others

22%

10%

1%6%

22%

4%3%

28%33%

2%

18%

25%

3%

16%

Stock: China’s Bond Market Size – expanding rapidly

➢ Risk diffusion away from banks – corporate bonds are now 20% of total bonds outstanding

➢ Better mix of risk/yield array – risk adjusted returns can now be developed across the risk

curve

Note: 1. Non-financial corporates include Enterprise Bonds, Corporate Bonds, Medium

Term Notes, Commercial Papers and Private Placement Notes; 2. Use USD/RMB=7 to

calculate

Source: Wind

2015:

RMB48.5tn

(US$6.9tn)

2010:

RMB20.7tn

(US$3.0tn)

2019:

RMB97.1tn

(US$13.9tn)


RMB3.3tn (US$0.48tn), 16%


RMB3.3tn (US$1.9tn), 28%


RMB3.3tn (US$2.8tn), 20%



China’s Bond Market – 2nd largest in world yet under-owned

11% Inclusion in WGBI Weighting

US$1.13tn Foreign Inflows

47% Foreign Holdings

USD 41.73% of SDR baskets*

9% Foreign Holdings

JPY 8.33% of SDR baskets*

2.8% Foreign Holdings

RMB 10.92% of SDR baskets*

US Bond Market Size (2019)

US$ 33tn

JAPANBond Market Size (2019)

US$ 9tn

Sources: Wind, ChinaBond, SH Clearings, SIFMA, ADB, IMF

CHINABond Market Size (2019)

US$ 14tn



Time for Diversification into Chinese Bonds

Thank You

All further enquiries contact Richard Cook at

asiatimesfinancial.com

[email protected]




Q&A


Thank You!

Documents

Time for Diversification into Chinese Bonds · 2020-05-13 · Bond Connect Webinar, 27th April 2020 All Eyes on China Providing the local news, practitioner views & benchmarks for