Eleven Hong Kong lenders including HSBC and Bank of China (Hong Kong) completed 4 billion yuan (US$618.73 million) worth of transactions on the first day of trading of the newly launched southbound Bond Connect on Friday, according to the People’s Bank of China.
Over 40 mainland institutional investors conducted 150 transactions to buy a wide range of Hong Kong bond products, the central bank said in a statement on its website.
BOCHK, one of the note-issuing banks in the city, said it completed 55 transactions worth 1.29 billion yuan for 27 mainland Chinese institutions.
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HSBC and Standard Chartered, the other two note-issuing banks, as well as China Citic Bank International and China Construction Bank (Asia), said they had also conducted trades for clients but did not disclose the amount.
Beijing last week approved the long-awaited scheme, allowing 41 mainland banks and 173 qualified domestic institutional investors to trade all existing bonds in Hong Kong, with a daily quota set at 20 billion yuan and a yearly limit of 500 billion yuan. The northbound route of the scheme, that allows international investors to trade on the mainland Chinese bond market without any quota, was launched in 2017.
In Hong Kong, the Hong Kong Monetary Authority has appointed 13 banks, including the three note-issuing lenders, as market makers.
“The launch of southbound trading of Bond Connect marks another milestone of mutual access between Hong Kong and mainland,” Chief Executive Carrie Lam Cheng Yuet-ngor said during a launch ceremony of the southbound Bond Connect on Friday morning.
She noted that within a month, Beijing had approved the launch of the A-shares futures trading in Hong Kong, the Wealth Management Connect and the southbound Bond Connect, which showed the central government’s support for Hong Kong as an international financial centre.
Since its launch four years ago, the northbound link has became a major channel for international investors to trade mainland bonds. About 2,733 global institutional investors have been approved to access China’s US$17.5 trillion bond market. It had a daily average turnover of 26.5 billion yuan in the first eight months of 2021, 17 times higher than 2017.
Foreign holdings of yuan-denominated bonds via the northbound link surged four times from 2017 to 3.78 trillion yuan in August, as global funds poured into China amid a period of low interest rates in search of higher yields in the country.
Bond Connect: is the southbound link the game-changing bonanza that banks and investors have been waiting for?
“The market is reacting very positively to the new route, and HSBC stands ready to support the institutional investor community to benefit from this opportunity,” said David Liao, co-CEO for HSBC Asia-Pacific.
“Bond Connect is part of a bigger story of Hong Kong’s distinctive ability to connect the economy of the mainland and the rest of the world, and underlines the two-way benefits of working together to create a whole that is greater than the sum of its parts,” Liao said.
BOCHK chairman and vice-chairman Sun Yu said the scheme will promote the growth of the local bond market.
While Hong Kong’s bond market size of HK$2 trillion (US$257 billion) is far smaller than the mainland’s US$17.5 trillion bond market, the southbound leg of the bond link is likely to be a game changer as it can attract more local Chinese governments and companies to issue bonds here, bankers said.
“The southbound Bond Connect will deepen domestic and international economic interactions and increase the cross-border use of yuan, and further advancing the internationalisation of yuan,” Sun said.
Mary Huen, the Hong Kong CEO at Standard Chartered, said the southbound Bond Connect strengthens the city’s role as a super-connector between the mainland China and overseas capital markets.
The Shenzhen city government on Friday morning said it would issue up to 5 billion yuan of bonds next month in Hong Kong. The yuan-denominated bonds, which will be listed on Hong Kong stock exchange, will have tenors of two, three and five years.
Lam said the Shenzhen government bond offering “showcases Hong Kong as the premier platform facilitating the mainland to ‘go global’, and marks another milestone in the development of financial services in Hong Kong.”
Financial Secretary Paul Chan Mo-po said the city plans to exempt profit tax on interest paid or profit received by investors from the Shenzhen government bonds.
Earlier on Thursday, foreign institutional investors piled into China’s 8 billion yuan sovereign bond sold in Hong Kong.
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