Global investor access to China’s financial markets is widening further with the launch of a bond trading link with Hong Kong. Officials banged a gong and clinked glasses of champagne on Monday morning as they officially kicked off trading on the long-awaited Bond Connect link. It’s the latest channel to link up financial markets in Hong Kong, a global financial center and mainland China, where authorities are gradually lowering restrictions for overseas investors.
Initially, investors can get ”northbound” access via Hong Kong financial institutions to mainland China’s interbank bond market. It’s the world’s third largest at $9.4 trillion in value but international investors own less than 2 percent of it. Bond Connect does away with onerous requirements for outsiders and eases worries about taking profits out of China, but downsides include worries about the depreciating yuan and reliability of China’s domestic credit rating agencies.
Officials are still exploring ”southbound” access for mainland investors, and said it depends on demand. The launch coincided with the 20th anniversary of Hong Kong’s handover from Britain to China on Saturday, when Chinese President Xi Jinping presided over the inauguration of the city’s new leader, Carrie Lam.
Bond Connect follows other recent moves to internationalize China’s markets. In 2014, officials launched a two-way stock trading link between Hong Kong and Shanghai with investors on both sides getting access to each other’s stocks. A second stock link last year connected Hong Kong and the mainland’s second exchange in neighboring Shenzhen.
Last month, global stock benchmark provider MSCI decided to add mainland-China listed shares available through those two trading links to its indexes.