The south-bound leg of the Bond Connect initiative connecting the Chinese and Hong Kong debt markets is scheduled to kick off official operation before the end of September.
The People’s Bank of China (PBOC) and the Hong Kong Monetary Authority (HKMA) announced on 15 September that Bond Connect’s south-bound leg, referred to as “Nanxiang Tong” (南向通) will open on 24 September.
According to PBOC Nanxiang Tong will serve as a “systems arrangement for mainland institutional investors to invest in Hong Kong’s bond market via connections between the basic services institutions of the mainland and Hong Kong.”
PBOC said that the move will “be of benefit to domestic institutional investors having more investment channels, of benefit to stabilising and driving the bi-directional opening of China’s financial markets, be of benefit to supporting Hong Kong in raising its competitive advantages and consolidating its status as an international financial centre.”
The move will enable Chinese domestic investors to use both the renminbi and forex to purchase bonds in the Hong Kong market, with initial participants confined to the 41 banking-sector financial institutions that serve as the primary dealers for PBOC’s open market operations, as well as qualified domestic institutional investors (QDII) and renminbi QDII.
The annual quota for the south-bound leg of Bond Connect is currently set at 500 billion yuan worth of trades, with a daily quota of 20 billion yuan.
The move comes following the opening of the north-bound leg of Bond Connect over four years ago in July 2017. North-bound Bond Connect has helped to drive an increase in the holdings of Chinese bonds by offshore investors from 850 billion yuan to 3.8 trillion yuan, for average annual rises of over 40%.
PBOC said that out of the world’s 100 top asset managers, 78 are currently participants in North-bound Bond Connect.