China's ABS market to attract more foreign funds

World
Europe

02:41

China's asset-backed securities (ABS) market has attracted significant foreign capital in specific areas and is seeking more international investors.

The country's ABS market has ranked among the largest in Asia since 2015. The issuance of China's asset-backed securities totaled over two trillion yuan (around 298 billion U.S. dollars) in 2018.

Foreign investors have shown interest in Chinese auto ABS products and might feel “strapped because it's hard to fully understand the fundamentals of issuers and regulators' roadmap to implement the opening,” according to Wang Hongbin, CEO of China at Euromoney Institutional Investor.

Wang Hongbin, CEO of China at Euromoney Institutional Investor. /CGTN Photo

According to Wang, as the country opens up its financial sector, foreign investors have gradually changed their attitude from “wait and see” to “have a try." And they want more communication with domestic regulators.

“We need more opportunities for top regulators and the market's leading participants to exchange views with players from multiple sectors,” Wang said.

Meanwhile, experts believe that more brokers in the ABS market could provide sufficient liquidity and attract additional investors.

“Currently, China's ABS market is dominated by banking investors, but in order to diversify the investor group, you need to attract (more players) like mutual fund, hedge fund and pension fund as well as insurance company,” said Tracy Chen, head of Structured Credit at Brandywine Global.

Chen continued, “If you set up some market makers and broker dealers in order to provide better liquidity, you can attract more diversified groups of investors, then you can also build better liquidity in the secondary market.”

Chen also remarked that good liquidity, simple transparent and straightforward deal structure, as well as data transparency could shore up foreign investors' confidence on Chinese ABS market.

Tracy Chen, head of Structured Credit at Brandywine Global. /CGTN Photo

Bond Connect, the China Interbank Bond Market and QFII are three major approaches for foreign investors to access China's ABS market nowadays.

“The performance track record is to be improved in China. There haven't been many defaults compared to an international rating agency whose model has been updated constantly,” said Eric Jan, head of China Investment at Barings Asset Management..

“From our perspective, we're wondering do we feel comfortable about investing in this market instead of how easy it is to get access to this market? So a scheme like Bond Connect is great but there are more factors we need to take into consideration,” Jan noted.

And Managing Director at Association for Financial Markets in Europe Richard Hopkin suggested that information disclosure is a key element that China could borrow from more mature markets.

“One of the debates during the financial crisis was the fact that not enough disclosure has been made. That might not be the trigger of the financial crisis but perhaps the losses we suffered afterwards… There's a strong push in Europe to disclose the information. We know, by law, it's necessary to disclose information about 'loan level data' for every loan in the portfolio,” Hopkin told CGTN.