Overseas funds offloaded Chinese sovereign bonds in August, cutting holdings to the lowest level in almost five years and piling pressure on a debt market already reeling from a shift by investors into stocks.
Holdings by foreign institutions fell for a third straight month in August to 2.01 trillion yuan (US$282 billion), the lowest level since January 2021, according to Chinabond data.
That represented 5.2 per cent of the total outstanding amount of Chinese sovereign debt as of the end of August, according to Bloomberg calculations.
Foreign appetite for Chinese debt is waning, with yields trailing Treasuries. August’s sell-off highlighted the shift as investors moved into local stocks, helping push the CSI 300 Index up more than 25 per cent from April lows.
Pressure may intensify after JPMorgan Chase said it would cut Chinese bonds’ weighting in its flagship emerging-market index, a change likely to spur further outflows.
“Foreign investors have shown more interest in China’s onshore equity market, while keeping a low appetite for bonds given the still relatively low absolute returns and eroded FX-hedged returns,” said Jeffrey Zhang, emerging-market strategist at Crédit Agricole CIB.