Source: Hong Kong Monetary Authority
Earlier today, the People’s Bank of China and the Hong Kong Monetary Authority made a joint announcement on Southbound Trading under Bond Connect. It gives me great pleasure to see that the long-awaited Southbound Trading will start trading on 24 September. Southbound Trading marks another important milestone in the two-way opening up of the Mainland financial markets. It will promote the vibrant development of Hong Kong’s bond market and further consolidate our status as an international financial centre.
Northbound Trading has proved to be a major success. In just four years since its launch in 2017, the scheme has attracted over 2,700 investors worldwide and has facilitated the inclusion of Chinese sovereign bonds in major global bond indices. In August this year, it accounted for 60% of foreign investors’ total turnover in the China Interbank Bond Market. The success of Northbound Trading has laid a solid foundation for the launch of Southbound Trading.
With the large foreign inflows into the Mainland financial markets and the steady accumulation of onshore wealth, Mainland financial institutions’ demand for overseas asset allocation has continued to grow. Southbound Trading will enable Mainland financial institutions to increase their allocation to offshore bond assets through Hong Kong in a convenient and secure manner. At the same time, it will provide incentives for international financial institutions to strengthen their presence in Hong Kong to better provide underwriting, trading, custodian and related services to Southbound investors. In the long run, the launch of Southbound Trading will attract more Mainland capital to invest in the Hong Kong bond market and broaden the local fixed income investor base. Issuers will have a greater incentive to issue bonds in Hong Kong, and that will further enrich the product offerings of the Hong Kong bond market.
Connect schemes weren’t built in a day. Similar to the experience of other Connect schemes, we expect to see Southbound Trading develop in a gradual manner with proper risk management. As you may recall, when Northbound Trading was first launched, the scheme recorded an average daily turnover of just RMB 1.5 billion. But in just four years’ time, daily turnover has seen a 17-fold increase to RMB 26 billion. This was made possible by the prudent launch and the continuous and incremental enhancements that followed. We will adopt the same prudent and incremental approach in developing Southbound Trading.