Investors Confident in China Securities Market

Investor confidence in China’s securities market remains strong, data from the China Securities Investor Protection Fund Corp. showed Saturday. The investor confidence index compiled by the SIPF came in at 58.1 in September, retreating 0.9% from August high.

On a yearly basis, the index still marked a 15.5% rise. Readings above 50 signal investor optimism, Xinhua reported.

Chinese stocks have steadily moved upward since June. The benchmark Shanghai Composite Index went up 0.25% to close at 3,378.65 points on Friday, while the Shenzhen Component Index closed 0.44% higher at 11,238.88 points.

Investors have strong confidence in China’s economy, both in economic policy and overseas operations, the SIPF said in a statement. The statement said the sub-index for economic fundamentals stood at 64.8 as the economy stabilized.

Data from the National Bureau of Statistics showed China’s economy continued steady expansion in the first three quarters of this year, with growth at 6.9% year on year, well above the government’s annual target of 6.5%.

Meanwhile, China’s roughly $7 trillion mainland bond market, which includes sovereigns, policy-bank bonds, and corporate issues, is the third largest in the world behind the US and Japanese markets, but has remained on the sidelines due to government restrictions that encourage foreign investors to tap China’s so-called Dim Sum bonds traded in Hong Kong, Barrons reported.

But the onshore market is opening up rapidly with China’s financial reforms, and global and emerging market indexes are expanding to include Chinese bonds. While index providers are cautious, US investors need to study what they want to own as portfolio managers slowly add exposure.

Today, only about 2% of mainland China’s bond market is owned by foreign investors, with the rest in the hands of Chinese banks and financial institutions and some sovereign wealth funds. But regulatory changes have brought about rapid index additions this year: In February, the Chinese allowed foreign bond investors to hedge currency risk, and in July, it opened a Bond Connect program that makes it easier for foreign investors to buy and sell domestic bonds.

Investor confidence may not pick up until JPMorgan adds domestic China bond exposure to its widely followed emerging market bond benchmark. JPMorgan last year said that China was under review for inclusion in the JP Morgan Government Bond Index-Emerging Markets Global Diversified, and in September, it said that its stance will be reassessed in 2018.