We believe that Chinese bonds are on the verge of entering the most tracked and invested emerging market local currency sovereign debt index.
This April saw China included in the Bloomberg Barclays Global Aggregate and Bloomberg Barclays Emerging Markets Local Currency bond indices, but China's bonds still remain excluded from the more widely used JP Morgan GBI-EM GD.
So far the JP Morgan GBI-EM GD index has excluded countries such as India and China due to historical hurdles in accessing these bond markets by foreign investors. GD stands for "global diversified"and this index is designed to be the most easily ‘replicable’ for investors. [Note: the JP Morgan GBI-EM Broad series of EM local currency debt indices has included India and China since their inception in 2005, however very few active investors use this index series.]
Given the size of China's bond market, the indications are for a weighting between 7-10 per cent in the JP Morgan GBI-EM GD. Ten per cent is the maximum permitted for a single country in this index and would put China alongside Poland, Mexico, Indonesia and Brazil (see above).
Access to the Chinese local bond market has significantly opened up in recent years particularly with the advent of Bond Connect, which allows overseas investors access to Chinese local bonds directly through the Hong Kong exchange. Prior to this, foreign investors needed to go through a lengthy process applying for a QFII (Qualified Foreign Institutional Investor) quota to be granted by SAFE (China's State Administration of Foreign Exchange) and finding a local clearing agent with international settlement.
This was a complex and lengthy process and the quotas granted were often well below what investors requested. Almost all these types of hurdles have now been eliminated, which should now make Chinese bonds eligible for inclusion in the JP Morgan GBI-EM GD index.
In the near term, the impact of China's inclusion would not be earth shattering. We have already been investing in Chinese local markets through interest rates and the currency for many years. Our Asian Local Currency Debt strategies for example use the JP Morgan JADE Broad index where Chinese onshore bonds already represent 10 per cent of the index. Many of our funds already invest in Chinese onshore bonds via Bond Connect as we have been an early adopter.
Index inclusion would be another important milestone in the internationalisation of China's renminbi currency.
Important legal information
The Pre-Contractual Templates (PCT) when applicable, the Key Information Document (KID), as well as the Prospectus must be read before any decision to invest. The Prospectus (in English and in French), the PCT when applicable, the KID (in French and in Dutch), as well as the latest annual and semi-annual reports (in English and French) are available free of charge at our financial Belgian agent CACEIS Belgium S.A., 86C /b320, Avenue du Port, 1000 Bruxelles or at the management company, Pictet Asset Management (Europe) SA, 6B, rue du Fort Niedergruenewald, L-2226 Luxembourg, as well as in digital format at www.assetmanagement.pictet.
The summary of investors rights is available here and in French and in Dutch at www.assetmanagement.pictet under the heading "Resources", at the bottom of the page.
The list of countries where the fund is registered can be obtained at all times from Pictet Asset Management (Europe) S.A., which may decide to terminate the arrangements made for the marketing of the fund or compartments of the fund in any given country.
The NAV are available at www.beama.be.
Claims and Mediation Service: For any claim you can contact Pictet Asset Management (Europe) S.A., Compliance Department, 6B, rue du Fort Niedergruenewald, L-2226 Luxembourg or the Consumer Mediation Service (Service de Médiation pour le Consommateur), North Gate II, Boulevard du Roi Albert II 8 in 1000 Bruxelles or at www.mediationconsommateur.be. The Mediation Service may suggest solutions for the settlement of the dispute. In the absence of agreement on the proposed solutions, each party may bring proceedings before the competent courts.
This marketing material is issued by Pictet Asset Management (Europe) S.A.. It is neither directed to, nor intended for distribution or use by, any person or entity who is a citizen or resident of, or domiciled or located in, any locality, state, country or jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.
Information, opinions and estimates contained in this document reflect a judgment at the original date of publication and are subject to change without notice. Pictet Asset Management (Europe) S.A. has not taken any steps to ensure that the securities referred to in this document are suitable for any particular investor and this document is not to be relied upon in substitution for the exercise of independent judgment. Tax treatment depends on the individual circumstances of each investor and may be subject to change in the future.
Before making any investment decision, investors are recommended to ascertain if this investment is suitable for them in light of their financial knowledge and experience, investment goals and financial situation, or to obtain specific advice from an industry professional.
The value and income of any of the securities or financial instruments mentioned in this document may fall as well as rise and, as a consequence, investors may receive back less than originally invested.
This marketing material is not intended to be a substitute for the fund’s full documentation or any information which investors should obtain from their financial intermediaries acting in relation to their investment in the fund or funds mentioned in this document.
The investment guidelines are internal guidelines which are subject to change at any time and without any notice within the limits of the fund's prospectus.
The mentioned financial instruments are provided for illustrative purposes only and shall not be considered as a direct offering, investment recommendation or investment advice. Reference to a specific security is not a recommendation to buy or sell that security. Effective allocations are subject to change and may have changed since the date of the marketing material.
Any index data referenced herein remains the property of the Data Vendor. Data Vendor Disclaimers are available on assetmanagement.pictet in the “Resources” section of the footer.
This document is a marketing communication issued by Pictet Asset Management and is not in scope for any MiFID II/MiFIR requirements specifically related to investment research. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any products or services offered or distributed by Pictet Asset Management.
Pictet AM has not acquired any rights or license to reproduce the trademarks, logos or images set out in this document except that it holds the rights to use any entity of the Pictet group trademarks. For illustrative purposes only.