Chinese government bonds are a must own part of the furniture for any multi-asset portfolio, which will keep our investments warm as the chill winds of risk aversion, blow through.
Speaker : Altaf Kassam
Happy New Year (Xīnnián kuàilè). Pardon me, please. For the poor pronunciation and a very belated happy Chinese new year to all those who celebrated. This time of year always takes me back to when we were a family in Hong Kong and our daughter, her again, was born. It was unseasonably cold, and I'll rush to the shops to buy a heater, to keep our newborn warm and a flat, which was only really set up for cooling and air conditioning. Now, even Chinese new year, last year seems like an age away now, and it was only
March, 2020 when the world health organization declared COVID 19, a global pandemic. March, 2020 was also a month I'll remember for its US treasury market dysfunction. And the global bond markets seemed on a course to derail central banks' attempts to ease financial conditions and get us through the pandemic until the Fed turned on the liquidity taps and saved us all. However, throughout that whole period, Chinese government bonds remained remarkably resilient at times trading even tighter than European government bonds.
And some of their previous negatives turned out to be positives. The lack of foreign investors meant they were more insulated from portfolio rebalancing and investor outflows and capital controls meant they didn't really get affected by the global dash for cash. Now that global bond market stability has thankfully returned, I still think Chinese government bonds are a must-own in any global multi-asset portfolio. For a start, they offer the correlation benefits that have really dwindled away from developed market government bonds, as their bond deals have remained pinned lower for longer. Um, Chinese government bonds still have a much lower and more stable correlation to developed market government bonds, developed market equities and even other emerging market government bonds.
And that's a phenomenon I think is going to stay for a while. They also have enviably high yields, both in nominal terms, but also stack up really well when adjusted for inflation in terms of real yields.
Again, something that's starting to become very absent from developed market government bonds. And finally, they have a tailwind from benchmark inclusion, which is driving in investor flows and keeping them extremely buoyant. So there's lots of reasons to be positive and why we would recommend owning Chinese government bonds, but at the same time, not everything in the garden is lovely. We know that top of investor's lists of concerns is often governance or ESG, but I do believe that the global
standardization of ESG norms will blow those cobwebs away.
So for me very much like our heater, which followed us back to London and kept me warm during the recent cold snap, I think Chinese government bonds are a must own part of the furniture for any multi-asset portfolio, which will keep our investments warm as the chill winds of risk aversion, blow through. With that, kung he fa choy and a very happy Chinese new year again.
The information contained in this communication is not a research recommendation or ‘investment research’ and is classified as a ‘Marketing Communication’ in accordance with the Markets in Financial Instruments Directive (2014/65/EU) or applicable Swiss regulation. This means that this marketing communication (a) has not been prepared in accordance with legal requirements designed to promote the independence of investment research (b) is not subject to any prohibition on dealing ahead of the dissemination of investment research.
This video is provided for informational purposes only and should not be considered investment advice or an offer for a particular security or securities.
The views and opinions expressed by the speaker are those of his or her own as of the date of the recording, and do not necessarily represent the views of State Street or its affiliates. Any such views are subject to change at any time based upon market or other conditions and State Street disclaims any responsibility to update such views. These views should not be relied on as investment advice, and because investment decisions are based on numerous factors, may not be relied on as an indication of trading intent on behalf of State Street. Neither State Street nor the speaker can be held responsible for any direct or incidental loss incurred by applying any of the information offered. Please consult your tax or financial advisor for additional information concerning your specific situation. This video cannot be used for commercial purposes and not all products and services in this video are available for investments in your region.
The whole or any part of this work may not be reproduced, copied or transmitted or any of its contents disclosed to third parties without State Street Global Advisors’ express written consent.
Investing involves risk including the risk of loss of principal.
© 2021 State Street Corporation. All Rights Reserved.
Exp. Date: 2/28/2022