Home bias keeps China's dollar bonds supported
SINGAPORE, Oct 24 (Reuters) -Dollar bonds issued by Chinese firms have stayed supported through the year, despite market volatility and investors' apathy towards China-linked assets, as mainland businesses plough their stockpile of dollars abroad into such debt.
CONTEXT
Domestic investors and exporters have been stashing money abroad as a weak economy and low yields at home undermines the yuan CNY=CFXS, setting it on course for a third year of depreciation.
Some of that stash sits as FX deposits at commercial banks, which have risen to $849 billion at the end of September. The rest is parked in overseas assets including dollar bonds issued by Chinese state-owned enterprises (SOEs).
BY THE NUMBERS
Barclays macro and FX strategist Lemon Zhang says dollar deposits at home haven't grown much this year, suggesting more is being kept overseas. She estimates exporters have $200 billion parked abroad.
The buying has supported SOE bonds, compressing their yields.
The ICE BofA Asian dollar investment grade corporate China index .MERCNIJ is up 5.4% this year, against a 4.9% rise for the ICE BofA high grade emerging markets corporate plus index .MEREMIB.
WHY IT'S IMPORTANT
Regardless of what happens with sentiment towards China following a raft of stimulus measures, its latest stock market rally and the U.S. presidential election, dollar bonds of Chinese SOEs are likely to stay supported, analysts say.
That's because depressed Chinese bond yields, headwinds to the yuan and the need for diversification are likely to keep exporters from bringing their money home.
QUOTE
"Many investors have a home bias and Chinese investors are generally no different," said Raymond Wong, a portfolio manager at Legal & General Investment Management.
"For much of this year, there were two main economic rationale for domestic Chinese buyers to hold on to or buy U.S. dollar bonds - the U.S. dollar has been strong vs the yuan... and U.S. dollar bond yields have been higher than (Chinese) bond yields."
Reporting by Rae Wee; Editing by Lincoln Feast.
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