Investors look for diversification and low volatility and Chinese bonds score well on these two measures, says Hayden Briscoe, Head of Fixed Income, Asia Pacific at UBS asset management. “These factors are bolstering the case for Chinese government bonds as a safe haven.”
Briscoe: “And if we look at the performance over the past year, China has outperformed in terms of total return. Additionally, yields of between 2% to 3% currently look highly attractive compared to the zero to negative yields available in most developed markets around the world.”
According to Briscoe, most investors around the world have a zero to low allocation to Chinese bonds, and if investors are waiting for global indexes to factor China bonds at the weight that reflects China's significance in the global economy at the proper, they will have a long time to wait, he says.
“That's why moving away from indices and picking the countries will become increasingly important and why I believe China has to be part of investors' global portfolios. The case is strong: it offers diversification, low volatility, yield and low credit risk in the government space since China remains a net creditor nation.”
China is one of the best places to invest during a global recession, he adds. "China's economy will grow an estimated 1.2% y-o-y in 2020 and 9.2% y-o-y in 2021, according to the most recent estimates by the International Monetary Fund (IMF). Global economic growth will drop by 3.0% y-o-y in 2020, and grow 5.8% y-o-y in 2021, according to IMF estimates released on April 14, 2020.”
Herewith you'll find the full analysis: 'China: out of lockdown - into recovery' from UBS Asset Management.