Improved access for foreign investors to China’s large bond market has started a conversation around the place of Chinese bonds within a global portfolio. Investors are now evaluating whether to make an allocation and, if they do, what level of investment that should be. In the current low yield environment, Chinese bonds represent an attractive yield pick-up opportunity1 while also offering good diversification benefits,* particularly for Europe-based investors. The ultra-low or even negative yields on offer in Europe and the low correlation of Chinese bonds to European bond returns are key factors in the decision mix.
Investors considering strategic allocations also need to take qualitative factors into account, such as credit risk, the level of market development, access and operational differences. Furthermore, the potential differences in liquidity versus more developed bond markets should also be borne in mind when deliberating on an allocation to Chinese bonds. On this basis, we believe that while there is a strong case for foreign investors to allocate to China’s bond market, building such an allocation should be done gradually.
Diversification Benefits Chinese bonds are lowly correlated with European bonds and therefore provide relatively attractive diversification benefits for European investors.
Yield Enhancement Chinese bonds offer relatively attractive yield enhancement relative to European government and investment grade credit fixed income assets.
Higher Volatility Chinese bonds could have potential higher volatility driven by currency movements.
Less Liquid, Less Mature Investors should be mindful of the potential for lower liquidity in China bonds, while also noting the developing and improving dynamics and structure of China’s fixed income markets.
This website is intended for persons resident in Australia. State Street Global Advisors, Australia Services Limited ABN 16 108 671 441, AFSL Number 274900 ("SSGA, ASL") is the product issuer. State Street Global Advisors, Australia, Limited (AFSL Number 238276, ABN 42 003 914 225) (“SSGA Australia”) is the Investment Manager. The material on this website is general information only and does not take into account your individual objectives, financial situation or needs.
You should seek professional advice and consider the Product Disclosure Document (PDS) and target market determination, available at www.ssga.com, before deciding whether to acquire or continue to hold units in the Funds.
You can access our PDS online or by calling us. The offer made in our PDS is available to persons receiving the PDS within Australia and applications from outside Australia will not be accepted. Past performance is not a reliable indicator of future performance. Investing entails risks and there can be no assurance that State Street Global Advisors will achieve profits or avoid incurring losses.
Investing involves risk including the risk of loss of principal. This material should not be considered a solicitation to apply for interests in the Funds and investors should obtain independent financial and other professional advice before making investment decisions. There is no representation or warranty as to the currency or accuracy of, nor liability for, decisions based on such information. Performance quoted represents past performance, which is not a reliable indicator of future results. Investment return and principal value will fluctuate, so you may have a gain or loss when shares are sold. Current performance may be higher or lower than that quoted.