Bond Connect scheme offers positive spin-offs to Hong Kong and mainland China
Although a launch date is yet to be announced, the People’s Bank of China and Hong Kong Monetary Authority have approved clearing agencies in both markets to work with HKEX about rules for the scheme
The much-anticipated Bond Connect scheme between Hong Kong and mainland China’s bond markets may help improve market liquidity and it is expected to help accelerate the pace for the internationalisation of the yuan.
The scheme is likely to increase the appeal of Hong Kong’s IPO market. Edward Au, co-leader, national public offering group, Deloitte China, says new market connectivity programmes, such as Equity Connect and Bond Connect, and their peripheral product and service offerings will attract liquidity to the market. “This would make Hong Kong even more attractive to larger offerings,” he adds.
The scheme is a new initiative for mutual access between Hong Kong and the mainland’s bond markets through a cross-border platform. It is expected to ease trading by overseas institutional investors in the mainland bond market. It is believed that the scheme will start with northbound trading, allowing foreigners to invest in the mainland bond market.
Although a launch date is yet to be announced, the People’s Bank of China (PBOC) and Hong Kong Monetary Authority (HKMA) have approved clearing agencies in both markets to work with the Hong Kong Exchanges and Clearing (HKEX) about rules for the scheme. China’s plan to launch a Bond Connect scheme allowing overseas institutional investors to buy debt on the mainland brings the country closer to internationalising the renminbi and its inclusion in global bond indices.
PBOC and HKMA say the scheme will enrich investment channels of foreign investors, enhance investor confidence, and is conducive to an open environment to better promote international balance of payments.
Bond Connect is made up of settlement and trading. Settlement is conducted through the accounts opened respectively at China Central Depository and Clearing and Shanghai Clearing House by the HKMA’s Central Moneymarkets Unit, which will handle the account opening procedures and compliance requirements, meaning overseas investors will have greater flexibility and convenience when investing in the mainland bond market.
