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:


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