Japan’s GPIF to shun Chinese govt bonds even after benchmark inclusion

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  • GPIF says stay out of Chinese government bonds
  • WGBI to start in October including China
  • Chinese bonds offer higher returns than developed countries
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TOKYO/SHANGHAI, Sep 29 (Businesshala) – Japan’s Government Pension Investment Fund (GPIF) will not invest in Chinese government bonds, even if they are included in a major bond index next month, due to settlement and liquidity issues, it said. said on Wednesday. .

The world’s largest pension fund, with net assets of 193 trillion yen ($1.729 trillion), said it would stay out of yuan bonds after Chinese bonds are included in the FTSE Russell’s World Government Bond Index (WGBI) from October.

GPIF President Masataka Miyazono, in minutes of his board meeting in July, cited three reasons why the fund thought investing in Chinese bonds would be risky for a large investor like GPIF. The minutes were released on Wednesday.

He said, “Chinese government bonds cannot be settled in the international settlement system that can be used for other major government bonds. Market liquidity is still limited compared to the size of the investment scale of GPIF. Futures trading is not allowed. .

In recent years, Chinese government bonds have been increasingly accepted by international investors as the market has grown in size and they offer a good yield compared to developed markets.

Chinese 10-year bonds yield more than 2.8%. US 10-year bonds yield just over 1.5% while Japanese bonds yield around 0%. In Europe, German Bund yields are negative.

With FTSE Russell’s latest move, all major bond index providers now include China as the country gradually opens up its bond market to foreign investors.

Some market participants are skeptical about whether the GPIF’s decision is purely financial, given the rocky diplomatic relations between the two countries.

Despite strong economic ties, the world’s second and third largest economies have clashed over a variety of issues ranging from Taiwan to territorial disputes and wartime history.

A director of a Chinese brokerage in Shanghai, who declined to be identified as not authorized to speak to the media, says the rationale behind GPIF’s decision is weak.

“We have revised our settlement speed for them. T+3 is just for them, the slow Japanese financial institution. So they are lying with their teeth,” he said.

Businesshala reported in January that Japanese investors, including GPIF, were wary of including Chinese bonds in their portfolios.

GPIF, which uses the WGBI as its benchmark for a large portion of its foreign bond investments, will exclude Chinese government bonds from its benchmark.

Its decision comes as Chinese property developer Evergrande (3333.HK) faces a debt crisis, which has raised concerns about the health of some leveraged Chinese companies.

International investors are also concerned about the flurry of regulatory action by Beijing on a variety of industries from fintech to education.

($1 = 111.65 yen)

Reporting by Hideyuki Sano; Editing by Christopher Cushing and Kim Coghilla

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