Citi first to fully include onshore Chinese debt in bond benchmarks

Citigroup has become the first major index provider to embed onshore Chinese securities in its indices by adding onshore Chinese debt to its bond market benchmarks.

Index providers for both bonds and stocks have been considering including onshore products as access to China’s markets has improved in recent years. However pressure from investors worried about onshore rules and the difficulty of repatriating funds due to China’s capital controls had stalled any from doing so until now.

Citi Fixed Income Indices said on Tuesday it will include Chinese onshore bonds in its Emerging Markets Government Bond Index, Asian government Bond Index and Asia Pacific Government Bond Index, with China’s weight in all three to be gradually increased over a three-month period.

“We are pleased to see regulatory changes that enable market access, allowing us to reflect and provide new investment opportunities in our indices,” said Arom Pathammavong, global head of Citi Fixed Income Indices. “We recognise the importance of appropriate market representation of our family of indices and are excited to grow our WGBI index family to suit investors’ needs.”

Until Cit’s announcement, Bloomberg and FTSE had gone the furthest, with both offering parallel indices that allowed fund managers who track their indices a choice of following benchmarks with onshore China securities, or ones without.

Citi is also introducing two new related indices that limit exposure to individual companies by imposing a maximum country weight criterion.

The company said the effective date of market inclusion in its indices “will follow our inclusion eligibility validation process and account for the time required for investors to prepare for the inclusion of the new markets.”

Last month China also opened up currency hedging for foreign bond investors.