Foreign investors’ purchases of Chinese bonds will probably surge more than fourfold in the coming two years as global central banks diversify their reserves.
Monetary authorities and supranational organizations will lead buying of about $48 billion in 2017 and 2018, according to a Bloomberg News survey of 11 analysts. That’s more than four times the $12 billion of the whole of last year. Inflows have slowed to $8 billion so far in 2016 as the yuan’s 4.2 percent decline sapped investor confidence.
"There’s still huge potential for reserve managers to diversify slowly their reserves into the yuan," said Paul Mackel, head of emerging-markets currency research at HSBC Holdings Plc.
While China opened up its bond markets in preparation for the yuan’s entry into the International Monetary Fund’s Special Drawing Rights on Oct 1, capital inflows have seen a limited impact. The scenario will change over time, with the Chinese currency accounting for as much as 10 percent of the world’s $11 trillion of foreign-exchange reserves in a decade’s time, according to Eswar Prasad, a Cornell University professor and former head of the IMF’s China division.
Nine of the Bloomberg News survey’s 11 respondents put more than even odds of Chinese government debt being added to major bond indexes by the end of 2018. Inclusion would help bring $750 billion of inflows in the next 10 years, according to the median estimate in the poll.
PBOC Deputy Governor Pan Gongsheng said earlier this year that China will push for the inclusion of domestic notes in global.