Foreign investors have emerged as the biggest buyers of government bonds in China's domestic market this year, a surprise development that is largely due to the inclusion of Chinese bonds in a major global index and the yuan's resilience.
Those overseas investors, primarily big institutional investors as well as central banks and sovereign-wealth funds, have bought a net 229.4 billion yuan ($35.9 billion) of the government bonds in 2018. The second-place group of investors, Chinese brokerages, have net purchases of a total of 41 billion yuan.
The surge in foreign buying has picked up since late March, when Bloomberg LP said it would add Chinese bonds to the Bloomberg Barclays Global Aggregate Index, becoming the first of the world's three major bond indexes to include them.
"The index inclusion of the Chinese market has definitely had a big impact on demand because many global investors track such indexes when allocating their money," said Peter Ru, Shanghai-based chief investment officer for China fixed income at Neuberger Berman Investment Management.
Goldman Sachs Group Inc. estimated last year that Chinese bonds' eventual inclusion in the world's three major bond indexes -- JPMorgan Chase & Co. and Citigroup Inc. run the other two -- could trigger fund flows of up to $250 billion into the market.
In all, foreign investors' holdings of Chinese government bonds had reached a record 836 billion yuan by the end of May, according to data provider Wind Info, double the amount a year ago and marking the 15th consecutive monthly rise.
