The third largest bond market in the world is being added to a major index.
Bloomberg, a leading global index provider, has announced that it will be adding China's yuan-denominated bonds to its Bloomberg Barclays Global Aggregate Index. The Bloomberg Barclays Global Aggregate Index is a top fixed income benchmark used by debt investors around the world. There is currently ~$2 trillion in assets tracking the benchmark and new status in international fixed income portfolios should attract significant foreign investment. It's estimated that inclusion in the Bloomberg Index alone could generate an estimated inflow of ~$100 billion into Chinese debt markets.
Valued at ~$11 trillion, China's domestic bond market is the 3rd largest bond market in the world. Inclusion is set to begin in April 2019 and will progress over a 20-month period. At full inclusion, it is expected that Chinese bonds will carry a 5.49% weighting of the $53.73 trillion index. This would make the yuan the fourth largest currency in the benchmark behind the U.S. dollar, Euro, and Japanese Yen. To date, a lacking presence in major international indexes has limited foreign investor exposure to the Chinese bond market. Commitment to financial reforms and inclusion in a major index marks another major step forward for China's liberalization and integration with global financial markets.
At Sandstone, the emergence of China in the ever-changing global economic landscape has been well documented over the past number of years. Exposure to the Chinese debt markets was added in 2Q17 through the PowerShares Chinese Yuan Dim Sum Bond Portfolio (YTD performance: +8.5%). We continue to believe China's growing relevance, and the global inclusion of its equity and bond markets, present attractive growth opportunities.