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Japan’s GPIF to Avoid Chinese Government Bonds Even After Benchmark Inclusion

The sign of the Government Pension Investment Fund (GPIF) of Japan can be seen in Tokyo, Japan on November 16, 2018. REUTERS / Toru Hanai / Files

  • GPIF says to stay out of Chinese government bonds
  • WGBI is expected to start including China from October
  • Chinese bonds offer higher yields than developed countries

TOKYO / SHANGHAI, Sept.29 (Reuters) – The Japanese Government’s Pension Investment Fund (GPIF) will not invest in Chinese government bonds due to settlement and liquidity issues, even after their inclusion in a major bond index next month, he said on Wednesday. .

The world’s largest pension fund, with total assets of 193 trillion yen ($ 1,729 trillion), said it would stay out of yuan bonds after the global government bond index (WGBI) of FTSE Russell began to include Chinese bonds from October. Read more

Masataka Miyazono, chairman of GPIF, cited three reasons why the fund thinks investing in Chinese bonds would be risky for a large investor like GPIF, in the report of its board meeting held in July. The minutes were released 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 relative to the scale of the scale. GPIF investment Futures trading is not allowed for foreign investors, ”he said. .

In recent years, Chinese government bonds have been increasingly accepted by international investors as the market has grown larger and offers decent yields relative to developed markets.

Chinese 10-year bonds return more than 2.8%. US 10-year bonds return just over 1.5% while Japanese bonds return around 0%. In Europe, German Bunds have negative yields.

With FTSE Russell’s latest move, all major bond index providers now include China as the country has gradually opened up its bond market to foreign investors.

Some market players doubt that the GPIF’s decision is purely financial, given the difficult diplomatic relations between the two countries.

Despite strong economic ties, the world’s second and third largest economies have clashed over a variety of issues ranging from Taiwan to territorial disputes and the history of war.

A director of a Chinese brokerage house in Shanghai, who declined to be identified because he is not authorized to speak to the media, says GPIF’s reasoning behind his decision is weak.

“We have changed our speed of settlement for them. T + 3 is fair for them slow Japanese financial institutions. So they are lying between their teeth,” he said.

Reuters reported in January that Japanese investors, including GPIF, remained reluctant to include Chinese bonds in their portfolios.

GPIF, which uses the WGBI as a benchmark for much of its investments in foreign bonds, will exclude Chinese government bonds from its benchmark.

His move came as the debt crisis of Chinese real estate developer Evergrande (3333.HK) sounded alarm bells about the health of some Chinese leveraged companies.

International investors are also increasingly concerned about a wave of regulatory crackdowns from Beijing on various industries, from fintechs to education.

($ 1 = 111.65 yen)

Reporting by Hideyuki Sano; Editing by Christopher Cushing and Kim Coghill

Our Standards: Thomson Reuters Trust Principles.

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