The announcement by the Hong Kong Monetary Authority (HKMA) and the People’s Bank of China (PBoC) to start south trading under Bond Connect on September 24 has been described as a historic milestone between the markets. capital from Hong Kong and the mainland.
Tradeweb and Bloomberg have already taken steps to facilitate trading for the new program, while HKMA has yet to nominate market makers for the program, but is expected to do so in the coming days.
Northbound trading under Bond Connect – which gave foreign investors access to the world’s second largest bond market – started in 2017, in line with the liberalization of Chinese capital markets.
Following the relative success of the Northbound initiative, the introduction of Southbound trading under Bond Connect will provide mainland institutional investors with a channel to invest in the Hong Kong bond market through the connection between mainland financial infrastructure service institutions. and Hong Kong.
Justin Chan, Head of Greater China, Global Markets, Asia-Pacific, HSBC, said the launch represents a revolutionary channel for mainland investors to access international bond markets.
“This is a major milestone for the Bond Connect program, signaling a further opening of China’s capital account,†he said. “The new link is expected to accelerate the development of the primary and secondary bond markets in Hong Kong. Offshore bonds could appeal to continental onshore investors who wish to diversify their portfolios. As the market develops, more and more global bond issuers will be attracted to Hong Kong. “
The Southbound initiative becomes China’s latest initiative to encourage overseas investment and will include participation from 41 mainland banks as well as members of the Qualified Domestic Institutional Investor (QDII) and Renminbi QDII programs.
There will be an initial daily quota of $ 3.11 billion and an annual quota of $ 77 billion.
“The Southbound Bond Connect offering has long been expected to help strike a balance between the Northbound and Southbound programs,†said Gary O’Brien, Head of Banking & Broker Segment Strategy at BNP Paribas Securities Services.
“We have seen for the other connection schemes that the role of the depositary is integral to the successful integration of the two markets due to their different characteristics in terms of currency, settlement cycle and settlement model. We expect the same from the launch of Southbound bond connect.
“The onshore market in China has seen increasing investor interest in different asset classes in recent years; especially bonds and therefore it is an exciting time to see the same investors benefit from improved access to the Hong Kong bond market. “