In focus

China Fixed Income: Investing in resilience


“We believe China’s bonds could serve an important role for global investors due to their attractive valuation, positive fundamentals, supportive technicals, and favourable risk reward characteristics.” – David Cheng, Investment Director, Asia Fixed Income

At a glance

We review the performance of the Chinese fixed income market during the pandemic and argue that Chinese government and corporate bonds could play a more important role in investors’ portfolios by providing a potential source of returns while offering diversification benefits.

  • China fixed income performed well during COVID-19: China’s onshore government bond market delivered positive returns, in both the renminbi and in unhedged USD, during the pandemic period, providing investors with the risk hedging benefits of a defensive asset. In credit, both onshore and offshore China corporate bonds delivered stronger performance than global credit markets.
  • Return opportunities: Chinese government bond currently offer wide spreads versus US Treasuries on an historic basis. They have delivered a strong performance track record in absolute and risk-adjusted terms. Chinese corporate bonds are also attractively priced versus global corporates.
  • Diversification potential: Chinese bonds have delivered favourable risk-return characteristics and low correlations to other bond markets while the renminbi (RMB) has been relatively stable. Diversification benefits for global investors could be significant.
  • Schroders experience: A dedicated team with significant experience in investing in Chinese bonds, offers a suite of investment solutions to take advantage of both onshore and offshore China fixed income opportunities.

Strong performance of onshore Chinese bonds during Covid-19

As global economies recover from the pandemic, we review the performance of both the Chinese onshore bond market and the Chinese offshore USD credit market during the peak of the crisis seeking to gain insight from this episode and to help investors think about the role of Chinese bonds in their multi-asset portfolios. Our findings appear encouraging.

First, let us look at how the global sovereign bond markets performed in February and March 2020 during the peak of market stress in both local currencies and unhedged in USD:

20210112_hk_eng_chart_1.JPG

Read the full report

Important Information
Any security(s) mentioned above is for illustrative purpose only, not a recommendation to invest or divest.
This document is intended to be for information purposes only and it is not intended as promotional material in any respect. The views and opinions contained herein are those of the author(s), and do not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds. The material is not intended to provide, and should not be relied on for investment advice or recommendation. Opinions stated are matters of judgment, which may change. Information herein is believed to be reliable, but Schroder Investment Management (Hong Kong) Limited does not warrant its completeness or accuracy.
Investment involves risks. Past performance and any forecasts are not necessarily a guide to future or likely performance. You should remember that the value of investments can go down as well as up and is not guaranteed. Exchange rate changes may cause the value of the overseas investments to rise or fall. For risks associated with investment in securities in emerging and less developed markets, please refer to the relevant offering document.
The information contained in this document is provided for information purpose only and does not constitute any solicitation and offering of investment products. Potential investors should be aware that such investments involve market risk and should be regarded as long-term investments.
Derivatives carry a high degree of risk and should only be considered by sophisticated investors.
This material, including the website, has not been reviewed by the SFC. Issued by Schroder Investment Management (Hong Kong) Limited.