HKMA Plans to Increase Quota on Bond Investment

HKMA Plans to Increase Quota on Bond InvestmentThe Hong Kong Monetary Authority stated last week that is has already used up its US$ 6.5 billion quota in investing in the capital market in the mainland and will now apply for plans to raise the quota.

It is said that a 30 billion yuan quota is needed to enter the onshore interbank bond market and around US$ 1.5 billion Qualified Foreign institutional Investor quota is already exhausted. The deputy chief executive for the Hong Kong Monetary Authority Eddie You said to the Legislative Council Panel on its Financial Affairs. You is now planning to have talks with the mainland regulators and discuss plans to increase the quotas. The authority was first granted a 15 billion yuan quota to purchase mainland interbank bonds in 2011 and the quota was doubled one year later.

As of the moment the China is keeping a tight leash on its inward bound investments on its capital markets and has allowed more foreign central banks and clearing banks and banks that are involved in cross border yuan trade to invest in its bond market. Several investors are also allowed to buy interbank bonds as of last year 11 years after the program was launched. Previously investors were only allowed to purchase bonds that are listed on the exchanges that are made up only a fraction of the pool of outstanding debt of China.

Initiated in 2002 the Qualified Foreign Institutional Investor program was one of the channels that allowed foreign financial institutions to invest on Chinese mainland securities markets ranging money market instruments, bonds and stocks. Higher yields  in the country’s onshore market tends to attract hungry global investors to look for higher returns and arbitrage flows is taking advantage of the gap between the onshore and offshore rates that has picked up recently.

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