It appears that the Hong Kong Exchanges & Clearing (HKEx) isn’t going to get the monopoly on an electronic trading link in China’s interbank bond market that it had been expecting.
The People’s Bank of China and the State Administration of Foreign Exchange will allow foreign investors to buy those securities in an effort to open up to direct overseas investment, reported Bloomberg. Unlike the dominance it enjoys in the equities market, the HKEx will have to compete with Germany’s Deutsche Boerse in offering access.
“The bond market is all new for them, but they are not going to have a monopoly,” Tony Tanaka, a Tokyo-based analyst at Haitong International Securities Group, told Bloomberg. “What it can do is to help connect bond markets between mainland and overseas, but a pure connection role has limited potential” for HKEx’s revenue.
With the exchange operator’s shares down 35% over the past year, the HKEx is counting on the fixed-income market to help broaden its products, increase projects with China and raise revenue, which is projected to decline this year for the first time since 2012.
At the end of the first quarter, the Hong Kong bond market was about $795 billion, according to Asia Securities Industry & Financial Markets Association data. Bloomberg data says China’s bond market is $8.4 trillion.
China has said it will remove quotas for most financial institutions to invest in the interbank bond market in February, after announcing earlier that fund managers approved under its Qualified Foreign Institutional Investor program won’t need to apply for allocations.