The linkage will give foreign investors wider access to the Chinese debt market, similar to the way the Stock Connect program bolsters trading between Hong Kong and Shanghai.
HKEX chief executive Charles Li Xiaojia said Bond Connect along with a derivatives connect initiative, a new commodities platform in Shenzhen and the introduction of a cross-border initial public offering (IPO) service were all part of the exchange’s strategic goals for the next three years.
“We are pioneers in connecting the world’s financial markets,” Li said at the unveiling of the operator’s strategic plan for 2016 to 2018 and its new logo at a media briefing last week.
“As we provide bridges to link China with the world, we are reshaping the global market landscape,” he said.
Two-way flows
Elaborating on the plan in a note, Li said he views Bond Connect as generating both inbound and outbound investment flows.
“For Inbound; we recognise that the bulk of the mainland bond market is traded over the counter, or OTC, in the so-called interbank market, rather than on-exchange. Facilitating overseas investors’ access to that market is the focus of our attention.
“For outbound; Hong Kong alone, without a large ‘sovereign issuer’, is not a compelling proposition. Therefore we are looking to partner up with a global platform to help mainland investors reach international bonds further afield, while trading and settlement still takes place through Hong Kong.”
The Bond Connect scheme, being an off-exchange initiative, represents a new direction for HKEX in fixed income and currency markets, but believes it can deliver a unique value proposition to make existing markets connect better, without trying to reinvent the way that investors currently trade bonds.
Consultations about the Bond Connect program were reported to have begun early last year when a proposal was reportedly submitted by the Treasury Markets Association, a body initiated by the Hong Kong Monetary Association.
