Retail sales remain strong, despite fears around the trade war, with official statistics showing 9.2% growth YTD, according to China's National Bureau of Statistics. But even in a number of EMs, like South Africa, foreign ownership is significantly higher at 30.1% (National Treasury Data, July, 2020). Publish your articles and forecasts in our website. While we are convinced that China’s stimulus measures and global liquidity improvement are the two main reasons for China’s improving outlook, uncertainty around the US-China trade development could be a dominating factor that weighs on China’s economic growth. We see this as a welcome differentiator to previous reflationary stimulus initiatives, reducing structural capital intensity and the volatility of China's longer-term growth prospects. All rights reserved. However, back- tested data may reflect the application of the index methodology with the benefit of hindsight, and the historic calculations of an index may change from month to month based on revisions to the underlying economic data used in the calculation of the index. Certain returns shown may reflect back-tested performance. Table 1: Correlation of Chinese government bond returns with other asset classes. Use and distribution of the LSE Group data requires a licence from FTSE, Russell, FTSE Canada, MTSNext, Mergent, FTSE FI, YB and/or their respective licensors. For further information on what we can offer you, please get in touch. Chart 1: Foreign ownership of Chinese bond market. But looking beyond China government bonds, we see good opportunities in the China and Asian High Yield markets more generally. The table shows that despite the short market index duration of 6.14 (which is very short relative to some G7 peers), overall yields are considerably higher than US Treasuries, JGBs and Bunds, even if the market has the same credit rating as Japan at A+. China's economy is expected to grow 5.8% in 2020, compared with 6.1% in 2019, according to estimates by the Organization for Economic Co-operation and Development (OECD); We expect the People's Bank of China government to ease interest rates in H1 2020; For equities, our strategies remain focused on long-term themes, like tech innovation and premiumization, and we see opportunities from SOE reform; China fixed income continues to look attractive in a world of negative yield, and Chinese and Asian High Yield are bright spots if global bond markets; Multi-asset strategies are tilted toward equities, particularly on China A markets, where companies will benefit from the Chinese government's ongoing policy support efforts. Please see the end for important disclosures. Data as of July 31, 2020. On the other hand, the development on the US-China relations remains uncertain and our view is that the rivalry will run for a longer period of time. Global government yields remain on the floor, and global inflation keeps surprising to the downside – so it's likely that monetary policy will remain loose. No part of this information may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without prior written permission of the applicable member of the LSE Group. 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Historically, it's worth noting Chinese government bond yields were below US Treasury and German Bund yields, in the early 2000s, and as recently as 2007, as Chart 4 shows, so current spreads of 250-350 bp are high historically But several factors suggest change is underway as foreign investors re-assess market, Improved access after recent reforms, the sheer size of the Chinese govt bond market, the trend towards inclusion in global bond indexes, high relative yields, and portfolio diversification benefits may all be contributing to increasing foreign investor flows into Chinese govt. For more information about LSEG group companies, see LSEG.com. Potential for profit is accompanied by possibility of loss. © 2020 London Stock Exchange Group plc and its applicable group undertakings (the “LSE Group”). So where do investors go for yield? Direct access to our calendar releases and historical data. On the policy front, while we do not expect the Chinese central government to roll out a large scale stimulus package next year, policies will likely be supportive and targeted. High-Yield Corporate Bonds 2017. The information and opinions contained in the content of this webpage have been compiled or arrived at based upon information obtained from sources believed to be reliable and in good faith but no responsibility is accepted for any errors or omissions. More than the technicals, we see capital appreciation opportunities in 2020 from two key sources: firstly, from the expected interest rate cuts we expect from the Chinese government and, secondly, from what we expect will be an influx of investor capital into the asset class as index inclusion continues to play out. …and China's shift to deflating post-GFC credit boom also a factor. Importantly in our view, recent monetary and fiscal stimulus measures have carefully targeted more capital efficient private sector corporates and consumers rather than the highly indebted property and state owned enterprise sectors. Despite the growth in the Chinese government bond market since the GFC, the market still has a very low level of foreign participation, at less than 10%, as Chart 1 shows. China's economy is expected to grow 5.8% in 2020, compared with 6.1% in 2019, according to estimates by the Organization for Economic Co-operation and Development (OECD)1. Default risks in local currency government bond markets are also very low, since the issuing authority has the option to print money to redeem debt, in extremis. Low foreign ownership has meant low correlation with G7 yields. Real yields are based on core CPI. The LSE Group includes (1) FTSE International Limited (“FTSE”), (2) Frank Russell Company (“Russell”), (3) FTSE Global Debt Capital Markets Inc. and FTSE Global Debt Capital Markets Limited (together, “FTSE Canada”), (4) MTSNext Limited (“MTSNext”), (5) Mergent, Inc. (“Mergent”), (6) FTSE Fixed Income LLC (“FTSE FI”), (7) The Yield Book Inc (“YB”) and (8) Beyond Ratings S.A.S.