(Nov 19): Just a couple years ago, China was ‘uninvestable’ to some global money managers as its economy reeled from strict Covid curbs and a crackdown on private enterprise.
Now, central banks, sovereign wealth funds and insurers around the world are bidding for the nation’s international debt like never before. The mood change was evident by how easy it was for China to raise a combined US$8.6 billion ($11.2 billion) by tapping both the dollar and euro bond markets in the last two weeks.
Bids for the two bonds reached a record total of at least US$234 billion. Investors’ robust appetite allowed China to borrow dollars at essentially the same cost as the US, followed by unprecedented demand for its offering in the single currency.
The new-found enthusiasm for Chinese assets has gained traction since April, when the nation’s stocks embarked on a surprise rally due to thawing trade tensions and pro-growth policies such as pursuing technological self-reliance. China’s global debt offerings are also drawing interest at a time of mounting concerns over fiscal woes plaguing developed nations from the US to France.
“We’re seeing a clear shift of capital from traditional developed markets into emerging markets as government debt ratios in the US, France, Japan and the UK continue to climb,” said Samuel Tse, a senior economist at DBS Bank. “Asia is benefitting from this trend, and China is at the top of investors’ lists.”
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China’s Ministry of Finance sold EUR4 billion of euro-denominated bonds Tuesday, drawing orders of 25 times the issuance size, the most ever for such offerings by the country. It followed a successful US$4 billion dollar bond sale on Nov 5, which fetched demand of almost 30 times.
The healthy demand enabled China to price the shorter-maturity notes of the dollar offering in line with Treasuries, despite the US having a stronger credit rating and a much bigger role in the global financial system.
As for its euro notes, the four-year tranche priced at five basis points above the mid-swap rate, while the seven-year part ended at 13 basis points above. The risk premiums were both slightly lower than those on China’s existing euro bonds and about 20 basis points more than comparable German sovereign paper at the time of pricing.
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China’s assets remain underweighted relative to its importance in the global economy, said Lynn Song, chief Greater China economist at ING Bank. “A truly international investment portfolio aiming to have a proper global representation should always have some exposure to Chinese assets.”
European investors bought 51% of China’s latest euro debt, with 35% snapped up by those in Asia, according to a statement from the country’s finance ministry.
The success of China’s recent dollar bond sale has fueled strong momentum for the euro issuance, said Keith Cheung, head of debt syndicate, Greater China and North Asia at Standard Chartered Plc, one of the arrangers in both bond offerings. “Global investors are actively seeking diversification, yet high-quality Asian sovereign bonds denominated in euros remain scarce.”
China’s strong debt sales added to the appeal of the nation’s assets, which have shown impressive resilience in recent weeks amid a global tech stock sell-off and volatility in developed-nation debt.
“Since the policy shift in 3Q2024, China’s economy has shown increasing signs of stabilisation and demonstrated strong resilience amidst ongoing tariff disputes with the US this year,” said Cary Yeung, head of Greater China fixed income at Pictet Asset Management. “As a result, foreign investors have adopted a more positive outlook on Chinese assets compared to the previous year.”
Uploaded by Magessan Varatharaja
