LONDON, Oct 20 (Reuters) - Bank of China launched two initiatives on Tuesday aimed at boosting foreign investors’ use of the renminbi (RMB) and grabbing a bigger chunk of a burgeoning offshore market in the currency in London.
The RMB Bond Trading Index, launched simultaneously in London, Shanghai and Singapore, is another attempt at increasing foreign holdings in the world’s third largest bond market.
Those were estimated last year at just under 2 percent of a market valued at 33 trillion yuan ($5.2 trillion), largely a reflection of difficulties foreign investors face when trying to buy yuan-denominated bonds.
While China has pushed ahead with measures to allow foreign institutions to buy its stocks and commodities more freely, bonds are still restricted to the QFII and RQFII programmes that allow big institutional investors to invest large amounts at considerable cost and with hefty delays.
As big a barrier is foreign investors’ lack of confidence in their knowledge of Chinese assets. Creating a bond index - a tried and tested way of creating a benchmark that filters asset quality - is one step towards resolving that problem.
“We hope the Index will serve as a guide for overseas institutional investors,” Bank of China chairman Tian Guoli said at the launch on Tuesday.
The index will be run by Bank of China’s Shanghai RMB Trading Unit with pricing available on both Bloomberg and Thomson Reuters EIKON terminals.
It will include four indexes of prices of Chinese Government Bonds and Policy Financial Bonds - state-backed debt issued by a handful of publicly-controlled “policy” banks.
Bank of China, China’s No. 4 bank, also announced its RMB trading centre in London, a reflection of Britain’s push over the last couple of years to leverage its pole position in global currency trading into leadership of yuan trading outside China.
Some 60 percent of wholesale currency trading globally is done in London and the city’s institutions have a similar share of yuan trading outside Asia.
Bank of China gave no details on the size of the investment in the new yuan trading centre, saying only that it would be the bank’s second largest offshore trading centre after Hong Kong. ($1 = 6.3480 Chinese yuan renminbi) (Editing by Louise Ireland)