LONDON - China's $16 trillion sovereign debt market is the proverbial elephant in the investment room. But it's becoming too big to ignore, even for the most risk-averse Western investors.
Dutch 10-year bond yields are languishing at around -0.4 percent, spelling losses for any investor who holds them to maturity, a picture reflected across Europe. Of the $9.5 trillion of assets under management from corporate and public pension funds globally, 0.26 percent was held in Chinese bonds as of the third quarter of 2020, up from 0.04 percent in 2015, according to data from institutional asset managers shared with financial data provider eVestment.
China's relatively successful handling of the COVID-19 crisis and brighter economic prospects has buoyed confidence, though. China has only stepped up efforts to open up bond markets in the past decade, so foreign investment is starting from a low base. While an increase in broader investment interest is not a new phenomenon, pension funds - the biggest and most cautious players - are now beginning to go with the flow.
Jacobs said China met many of the criteria pension investors had when investing overseas - besides size and credit ratings, the yuan is less volatile than other emerging currencies. Shaniel Ramjee, part of Pictet's multi-asset team, is confident that Chinese debt has moved past being a niche asset for large institutions like pension funds, but said the trend was in its early stages.