JPMorgan Chase & Co has placed China’s onshore government bond market on review to be included in its emerging-market bond indices, a move that could attract billions of dollars of foreign capital to the country and help shore up its flagging currency.
The review, which JPMorgan announced in a report on Tuesday, follows a People’s Bank of China’s statement last month that most types of overseas financial institutions would no longer need quotas to invest in the interbank bond market, which accounts for the bulk of debt in the nation.
Foreign investors have been leaving China’s debt market at a record pace this year with the currency posting the biggest three-month decline through January since 1994. Inclusion would bring in funds just as China’s policy makers seek to stem the yuan’s losses and finance stimulus that would widen the budget deficit to a record 3 percent of GDP this year.
If accepted, China’s onshore debt would have a maximum index weight of 10 percent of JPMorgan’s GBI-EM Global Diversified index, which is tracked by US$180 billion in assets, according to the report.
The review was reported earlier by the Wall Street Journal.
Key issues under consideration include whether foreigners can bypass currency repatriation restrictions and the Chinese government’s definition of medium and long-term investors, according to the report.
Foreign holdings of China’s onshore bonds declined for a third month last month to 541.3 billion yuan, extending a record drop of 49.6 billion yuan (US$7.67 billion) in January, China Central Depository & Clearing Co data show.
Foreign ownership of yuan bonds is likely to rise to between 8 percent and 10 percent from less than 2 percent in the next five years, Deutsche Bank AG estimates, while Standard Chartered PLC forecast an increase of up to 7 percent by 2020.
In related news, China is to boost lending to brokerages for their margin trading business after the nation’s stock market slumped and leverage more than halved from last year’s peak.
China Securities Finance Corp (CSF, 中國證金), a state-backed agency that provides margin financing and liquidity, said it would resume loans of certain durations to securities firms in a statement on Friday.
The agency is to restart lending for 182-day, 91-day, 28-day, 14-day and seven-day margin trading, as well as cut borrowing costs, according to the statement.
The rate for 180-day loans is to be cut to 3 percent, while that for 91 days is to be lowered to 3.2 percent, according to the statement.
The 28-day lending rate is to be reduced to 3.3 percent, while the 14-day and 7-day costs are to be cut to 3.4 percent, it said.
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