Fixed Income ETFs to Buy China Bonds

How will the inclusion of renminbi-denominated Chinese government and policy bank bonds in Barclays Bond indices impact investors?

Jose Garcia Zarate 10 April, 2018 | 2:38PM
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Jose Garcia Zarate: Bloomberg has recently announced that renminbi-denominated Chinese government and policy bank bonds will be included in Barclays Bond indices from April 2019. The inclusion will take place in stages and once completed, the weight of China in the Barclays Global Aggregate Index, which is the benchmark of reference for the global bond market, will increase significantly from current 0.6%, which only accounts for offshore bonds, to around 6%.

Aside from the Global Ag, the main impact of the inclusion of Chinese bonds will be felt in local currency emerging market bond indices. In fact, China would become the largest component accounting for close to 40% of the market. However, it must be noted that there is a version of this index that applies a 10% cap to the weight of individual countries in order to ensure diversification.

This move by Bloomberg acknowledges that nowadays most investors find it hard to reconcile the idea of investing in international bond markets and particularly emerging markets and not include what has become the third largest bond market in the world after the U.S. and Japan.

The move also serves as a handy reminder that indices and by exchange the passive funds that track them are not immutable investment propositions. Quite a contrary, they can see significant mutations throughout time and so investors in passive funds should keep track of these changes to ensure that the indices continue to meet their investment goals and risk tolerance.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Jose Garcia Zarate

Jose Garcia Zarate  is Associate Director of Passive Strategies Research for Morningstar Europe

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