Global financial services titan UBS says a trillion-dollar bond market is being seriously overlooked by investors.
In a new research note, UBS, which manages over $5 trillion in assets, says that Chinese bonds may provide “diversification potential beyond the dollar.”
“China’s onshore bond market, valued at over USD 25 trillion, is the second largest globally, yet remains significantly under-owned by foreign investors, with foreign ownership [standing] at below 3%.
This is notably lower than the 10% weight of the China subindex in the J.P. Morgan Government Bond Index-Emerging Markets Global Diversified (GBI-EM GD).
This market offers significant room for global participation. It has already been included in the JP Morgan, FTSE Russell, and Bloomberg global government bond indices since 2019 because of the scale and full accessibility.”
The bank’s analysts also point towards “structural tailwinds” supporting the renminbi, including China’s consistent current account surplus, disciplined FX reserve management, and “rising global demand amid de-dollarization.”
In a recent note, JPMorgan also warned that a de-dollarization trend was unfolding globally, partially evidenced by US competitors like China stockpiling gold at record paces.
Says JPM,
“The main de-dollarization trend in FX reserves, however, pertains to the growing demand for gold. Seen as an alternative to heavily indebted fiat currencies, the share of gold in FX reserves has increased, led by emerging market (EM) central banks — China, Russia and Türkiye have been the largest buyers in the last decade.”
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