According to Stephen Li Jen's projections, Beijing will not devalue the renminbi. From April, the Dragon bonds will enter the Bloomberg Barclays Global Aggregate Index and other leading indexes in the world will do the same. The progressive opening of the Chinese financial system will bring capital flows in the amount of 2,000 billion yuan in three years.
The inclusion in the global bond indexes issued by the central government and the Chinese policy banks will, within five or six years, transfer near $ 1 billion coming from foreign investors to the Dragon bond.
From April, the renminbi bonds will enter the Bloomberg Barclays Global Aggregate Index. According to Stephen Li Jen, CEO of Eurizon SLJ Capital - a London-based subsidiary controlled by Eurizon, Intesa Sanpaolo Group - other major indexes will do the same, However, at present it is only a part of the Chinese bond world. Only central government and policy banks bonds, which are 100% sovereign bonds, will enter the Bloomberg indexes. This is approximately half of the titles available. Local government and corporate issuances are excluded.
The Chinese market is comparable to the Japanese market, which currently accounts for about 15% of global indexes. Therefore, once included among the Bloomberg indexes, the Dragon bonds will represent around 6% of the indexes. Eurizon also predicts that in 2019 the Chinese bond market could become the second largest in the world.
Pierpaolo Rinaldo, manager of Eurizon Fund Bond Aggregate RMB, explained his view at Finanz'19, last January in Zurich. "In the last two years the growth has been around 16%. If our GDP and market growth forecasts were confirmed, in the next 10-15 years, the Chinese market could therefore quadruple, and then excel alongside the US".
"Beijing fully understands what is at stake," added Stephen Li Jen. "This is why I believe there is no possibility that China devalues the renminbi, at least in the near future. Some believe the opposite and think that a devaluation will serve to offset the impact of the economic slowdown and the potential imposition of tariffs. I think this is a mistake.
The CEO of Eurizon SlJ Capital believes that the opening of the Chinese bond market represents the most critical change in global finance since the introduction of the euro in 1999. "During the late 40 years, since the opening of China, liberalization has mainly affected the real economy, including trade and foreign direct investment, but excluding the financial sector".
Stephen Li Jen added that, over the past two years, the world has witnessed market opening policies that encouraged foreign investors to enter the stock and bond markets. "We believe that in the medium term there will be significant prospects of capital flows, in the amount of 2,000 billion dollars in three years".
(Source:Class Editori)
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