Japan’s GPIF avoids Chinese government bonds even after including benchmarks

Tokyo / Shanghai — Japan’s Government Pension Investment Fund (GPIF) said Wednesday that it would not invest in Chinese government bonds due to settlement and liquidity issues, even after being included in the major bond index next month.

The world’s largest pension fund with total assets of 193 trillion yen ($ 1.729 trillion) says FTSE Russell’s World Government Bond Index (WGBI) will move out of RMB-denominated bonds after it begins to include Chinese bonds in October. rice field.

In the minutes of the board meeting held in July, GPIF President Masataka Miyazono cited three reasons why funds consider investing in Chinese bonds to be risky for large investors like GPIF. The minutes were released on Wednesday.

“Chinese government bonds cannot be settled with international payment systems that can be used for other major government bonds. Market liquidity remains limited compared to the size of GPIF’s investment. Foreign investors are allowed to trade futures I haven’t. “

In recent years, Chinese government bonds have become increasingly popular with international investors as their markets have expanded and offered decent yields compared to developed markets.

Yields on 10-year Chinese bonds are over 2.8%. Yields on 10-year US bonds are just over 1.5%, while yields on Japanese bonds are around 0%. In Europe, Germany’s Bund yield is negative.

With the latest move from FTSE Russell, China is gradually opening up its bond market to foreign investors, so all major fixed income index providers now include China.

Some market players question whether the GPIF’s decision is purely financial given the unstable diplomatic relations between the two countries.

Despite strong economic ties, the world’s second and third largest economies have clashed on issues ranging from Taiwan to territorial disputes and wartime history.

A director of a Chinese securities firm in Shanghai, who did not reveal his identity because he did not have the authority to speak to the media, said the reason behind the GPIF’s decision was weak.

“We changed the payment speed for them. T + 3 is only for them, slow Japanese financial institutions, so they are lying through their teeth,” he said. ..

Reuters reported in January that Japanese investors, including GPIF, remain wary of including Chinese bonds in their portfolios.

GPIF, which uses the WGBI as the benchmark for most foreign bond investments, excludes Chinese government bonds from the benchmark.

The decision was made after the debt crisis of Chinese real estate developer Evergrande warned about the health of some leveraged Chinese companies.

International investors are also increasingly concerned about Beijing’s surge in regulatory crackdowns on industries ranging from fintech to education.

($ 1 = 111.65 yen)

Hideyuki Sano, Andrew Galbraith