Investors eye new haven in China bonds as index decision looms

The inclusion of Chinese government bonds in the index is a potentially major step as investors seek safe-haven assets in a zero-interest-rate world. (AFP)
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Updated 24 September 2020

Investors eye new haven in China bonds as index decision looms

  • FTSE Russell to conduct annual WGBI review Thursday

SHANGHAI: China’s recovery from the COVID-19 pandemic and a flurry of market reforms are creating an ideal backdrop for the possible inclusion of its government bonds in a major global index this week.

Index provider FTSE Russell is widely expected to add Chinese government bonds (CGBs) to its flagship World Government Bond Index (WGBI) after an annual review on Thursday, a potentially major step for Chinese bonds as investors seek safe-haven assets in a zero-interest-rate world.

“If China is included into WGBI, it indicates that it has passed FTSE Russell’s rigorous index inclusion criteria, particularly around market access and tradability,” said Danny Suwanapruti, rates strategist at Goldman Sachs. “This opens the doors for several global fixed income investors beyond index trackers, such as total return funds, multi-asset funds, DM bond funds and central banks.”

China fumbled inclusion in last year’s WGBI review over long-standing investor concerns, in particular the poor liquidity, limited flexibility in foreign exchange settlement and tight bond settlement cycles.

Since then, regulators have addressed many sticking points, simplifying regulations, scrapping quotas, extending trading hours and bringing market structures more in line with global norms, including a raft of measures in the past few weeks.

“A couple of weeks ago, people would have thought inclusion is going to be a close call because there were still some outstanding issues,” said Suwanapruti. The recent changes improved the chances of inclusion in the index, he said.

Chinese government bonds are already becoming a part of the J.P Morgan and Bloomberg Barclays index suites. But the FTSE WGBI has a far larger passive band of investors following it.

Goldman Sachs estimates there is $2.5 trillion of global cash following the WGBI, and China’s inclusion could drive $140 billion into mainland bonds.

A WGBI inclusion would help to legitimize Chinese bonds for more investors, particularly as the People’s Bank of China keeps policy steady while the rest of the world is cutting rates.

Hiroshi Yokotani, of State Street Global Advisers, said Japanese investors seeking to diversify away from US assets have begun to look at China as a possible destination, noting that “of course, investors are desperate for yields.”


Ice cream sales deliver cool quarter for Saudi Arabia’s Sadafco

Updated 28 min 9 sec ago

Ice cream sales deliver cool quarter for Saudi Arabia’s Sadafco

  • Second-quarter net profit rose 7.9 percent to $18.7 million

LONDON: Ice cream sales helped to boost earnings at Saudia Dairy and Foodstuff (Sadafco) in the second-quarter as the food processor maintained its market share in the Kingdom.

Second-quarter net profit rose 7.9 percent to $18.7 million (SR70.2 million) compared with a year earlier, the company said in a stock exchange filing.

Food companies worldwide have had mixed fortunes this year as lockdowns helped to boost sales across many product lines while logistical problems hampered attempts to satisfy customer demand.

Sadafco said sales of both ice cream and consumer milk rose 2 percent over the quarter while tomato paste sales jumped by 15 percent. Its gross profit margins were broadly in line with a year earlier at 33 percent.

“Our performance this quarter and this period continues to strengthen over last year,” the company said in a statement on Tuesday.

However, it said that the tripling of value added tax (VAT) in the Kingdom had a significant impact on shopping basket cost.

Sadafco is expanding operations in Saudi Arabia with the construction of a new ice cream factory and the planned acquisition of Horizon Food Factory.

It currently operates two factories in Jeddah and another in Dammam.