Investec EM debt head predicts China to open up bond market in next decade
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Investec head of emerging market debt Peter Eerdmans says he expects China to become an investable bond market in the next ten years.
Eerdmans says that he expects there to be $4trn of emerging market sovereign debt in China by 2022, double the current figure of $2trn.
He says: “China will enter the index as it becomes accessible. At the moment China is pretty much an inaccessible market due to capital controls. As they grow, the plan is that they open up their capital account more and more.”
Investec currently uses the JPM GBI-EM global diverisified local currency benchmark indices, which limits the amount per country in the index to 10 per cent. Eerdmans says that China would occupy 25 per cent once it enters the market if that limit was not in place.
He says: “China is lower yielding than the rest of the market and so it will reduce yields a little, but once they have opened capital accounts they will move to more normal monetary policy and inflation targeting, real yields will not be as low as they are now.”
Other countries he expects to enter by 2022 are Nigeria, India, Kenya, Lebanon, Morocco, Serbia, Ukraine, Vietnam, Ghana, Romania, Zambia, Egypt and Philippines. He expects Chile, Hungary, Poland, Russia and Turkey to exit.
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