TOKYO / SHANGHAI – Japan’s public pension investment fund (GPIF) will not invest in Chinese government bonds due to settlement and liquidity problems, even after it is included in a major bond index next month.
The world’s largest pension fund, with total assets of 193 trillion yen ($ 1.729 trillion), will remain outside the yuan bond after FTSE Russell’s World Government Bond Index (WGBI) begins to include Chinese bonds from October.
In the minutes of the board meeting in July, Masataka Miyazono, president of GPIF, cited three reasons why it was risky for large investors like GPIF to invest funds in Chinese bonds. The minutes were published on Wednesday.
“Chinese government bonds cannot be settled in an international settlement system that can be used for other major government bonds. Market liquidity is still limited compared to the size of GPIF’s investment scale. Future transactions are not allowed for foreign investors, ”he said.
In recent years, Chinese government bonds have been increasingly accepted by international investors as the market size has increased and they provide reasonable yields compared to developed markets.
The yield on Chinese 10-year bonds is up 2.8 percent. U.S. 10-year bond yields are only 1.5 percent and Japanese bond yields are about 0 percent. In Europe, German bonds have negative yields.
As a result of FTSE Russell’s latest move, all major bond index providers have now included China as the country gradually opens its bond market to foreign investors.
Given the rocky diplomatic relations between the two countries, some market players are skeptical about whether the GPIF decision is entirely financial.
Despite strong economic ties, the world’s second and third largest economies have clashed on a variety of issues, from Taiwan to regional conflicts and wartime history.
A director of a Chinese broker in Shanghai, who declined to be identified as not authorized to speak to the media, said the rationale behind GPIF’s decision was weak.
“We have changed the pace of our settlement for them. T + 3 is, for them, a slow Japanese financial institution. So they are lying with their teeth, ”he said.
Reuters reported in January that Japanese investors, including GPIF, were wary of including Chinese bonds in their portfolios.
The GPIF, which uses WGBI as a criterion for a large portion of its foreign bond investments, will exclude Chinese government bonds from its criteria.
Evergrand, a Chinese property developer, has said its debt crisis has raised concerns about the health of some leveraged Chinese companies.
International investors are increasingly concerned about the regulatory crackdown by Beijing on various industries, from fintech to education.
($ 1 = 111.65 yen)
Written by Hideuki Sano and Andrew Galbraith
This News Originally From – The Epoch Times