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Despite the pandemic ravaging investor confidence early in 2020, U.S. and European investors flocked to Chinese debt, pushing the level of foreign investment in China's bonds to a record high and more than double its 2019 level, data from the Institute of International Finance show.
What happened: Chinese government and policy bank bonds were added to the Bloomberg Barclays Global Aggregate Index beginning in April 2019 and in September JPMorgan announced that they would add China's government bonds to its highly followed EM global bond index.
- China's weight in the index reached 10% in November.
Between the lines: Total inflows to emerging markets declined by just $48 billion from 2019's levels, "an impressive reading considering that the COVID-19 shock meant one of the deepest and most violent outflow episodes on record," IIF says in a report.
Watch this space: The fourth quarter of 2020 saw $179.6 billion of EM inflows, the strongest quarter for the asset class since just before the “taper tantrum” in 2013, which caused significant EM outflows for years.
Why you'll hear about this again: U.S. lawmakers have worked to restrict American investment in China by imposing regulations on Chinese companies' equity offerings.
- However, as China's debt, which offers yields at more than 3% (about three times comparable U.S. offerings), becomes more mainstream, more funds will likely flow into the country.