All bonds can be covered in connect scheme

Finance | Victor Zhong and Reuters 16 Sep 2021

All bonds traded in Hong Kong regardless of currency could be included in the southbound leg of the Bond Connect program, said the Hong Kong Monetary Authority, before the program's inception on September 24.

An annual quota of 500 billion yuan (HK$604.78 billion) has been set for the program, with the daily ceiling equivalent to 20 billion yuan.

"Connect schemes were not built in one day. We expect to see southbound trading develop in a gradual manner with proper risk management practices in place," HKMA chief executive Eddie Yue said in a news briefing.

In a joint statement yesterday, the central People's Bank of China and the HKMA said the southbound Bond Connect channel would allow mainland institutional investors to invest in the Hong Kong bond market through the connection between the mainland and SAR institutions in financial infrastructure services.

The PBOC said that 41 mainland banks, as well as participants in the mainland's qualified domestic institutional investor and yuan QDII schemes, would participate in the new arrangement.

In a separate announcement yesterday, the China Foreign Exchange Trade System said that it would publish a list of specific bonds eligible for trade through the program and update it according to market conditions and investors' needs.

Foreign investors have acquired HK$3.8 trillion yuan worth of mainland bonds through the northbound leg, for which no quotas apply to trades.

The northbound Bond Connect, launched in July 2017, has become a major channel for foreign investors seeking access to China's bond market.

The average daily turnover through Bond Connect reached 26.3 billion yuan last month, up 35 percent from a year earlier, according to Bond Connect.

The Hong Kong government said it welcomes the connect program which further increases connectivity between the mainland and the financial hub.

The announcement of the southbound Bond Connect comes less than a week after China kicked off a new Wealth Management Connect program linking Guangdong with Hong Kong and Macau.

The introduction of Wealth Connect and the southbound Bond Connect "signals that China is less worried about portfolio outflows as the country forges ahead with deeper financial penetration," Carlos Casanova, senior economist for Asia at Union Bancaire Privee, said in a note.

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