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Who will benefit from the Hong Kong Bond Connect?

Trading through China’s bond-connect program started on July 3, marking the latest attempt to encourage foreign investment in the third-largest bond market in the world.

So what difference is the Hong Kong Bond Connect likely to make and who will be happiest now that it is a reality.

“The program will be conducive to the diversification of investment channels and further strengthen the ties between Hong Kong and Chinese mainland. Besides, it also can bolster Hong Kong’s status as an international financial hub,” said Yi Huiman, president of the Industrial and Commercial Bank of China (ICBC).

Jim Wai Kee, co-head of the Global Markets with ICBC Asia also noted that the Bond Connect is an important milestone for Hong Kong and also for Chinese interbank bond markets.

“We estimate that there will be about 250 billion more US dollars flushing into the mainland bond market,” Wai Kee said.

Kee also believes the mainland commercial banks will be able to better satisfy their stock clients with more options, especially when they have closer connection with Chinese bond issuers and regulators.

Kee also added that, the Chinese bond market has to build a more open and internationalized structure, including letting in external ratings agencies, to better control risk when the Bond Connect is working.

Alvin Li, chief strategist with CSOP Asset Management, said the Bond Connect, as a very standard program, will grant overseas investors easier access to the mainland bond market.

“China has previously opened its interbank bond market for offshore investors to apply, but they were reluctant to try because of the come and go RMB depreciation,” said Li, “But the trend now has stabilized and we have more and more clients inquiring how to get into the Chinese bond market again.”