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China Is Hunting for Foreign Buyers for Its Sovereign Debt

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Re: China Is Hunting for Foreign Buyers for Its Sovereign Debt

#11

Post by ChuckMcM »

cm2187 wrote: post #3

Can someone explain to me why an investor would want to invest in a foreign debt and currency from a country that has capital controls and a history of undervaluing its currency?

You give someone a billion dollars, and they promise to give you back your billion plus another 210 million three years later.

Probably wouldn't want to put your only billion there, but if you had say 160 billion sitting around, put one there and the other 159 billion in US treasuries you have added 30 basis points of upside to your return at a risk of 29 basis points.

Re: China Is Hunting for Foreign Buyers for Its Sovereign Debt

#12

Post by diplo24 »

wonderwonder wrote: post #2

I wonder if China is seeing any impediments due to people being loathe to invest in a country where personal freedoms are very restricted and millions of their citizens are swept up in re-education camps. I would be hesitant from a personal standpoint but most larger wealth funds are probably not so restricted. By the same token neither are most manufacturers.

Yes and no. For example, a lot of asset managers offer products like "environmentally responsible" portfolios which are supposedly pretty popular. But, if there's money to be made, we all know how the world works - there will be a guy willing to make it

Re: China Is Hunting for Foreign Buyers for Its Sovereign Debt

#13

Post by anonymfus »

projectramo wrote: post #7
cm2187 wrote: post #3

Can someone explain to me why an investor would want to invest in a foreign debt and currency from a country that has capital controls and a history of undervaluing its currency?

They might do it for 3x the return: "China’s government bonds were among the world’s best performers in 2018, returning 7.7 percent, while U.S. Treasuries earned 0.8 percent, ICE Bank of America Merrill Lynch data show. That gain is in yuan terms, however, and the yuan dropped 5.4 percent against the U.S. dollar." So 7.7 - 5.4 = 2.3% which is almost 3x 0.8% return on US Treasuries.

>So 7.7 - 5.4 = 2.3%

Seriously? 0.946 * 1.077 = 1.018842

So about 1.9% which is about 2.4x 0.8% return on US Treasuries.

Re: China Is Hunting for Foreign Buyers for Its Sovereign Debt

#14

Post by seppin »

projectramo wrote: post #7
cm2187 wrote: post #3

Can someone explain to me why an investor would want to invest in a foreign debt and currency from a country that has capital controls and a history of undervaluing its currency?

They might do it for 3x the return: "China’s government bonds were among the world’s best performers in 2018, returning 7.7 percent, while U.S. Treasuries earned 0.8 percent, ICE Bank of America Merrill Lynch data show. That gain is in yuan terms, however, and the yuan dropped 5.4 percent against the U.S. dollar." So 7.7 - 5.4 = 2.3% which is almost 3x 0.8% return on US Treasuries.

3x given the risk involved? Not worth it

Re: China Is Hunting for Foreign Buyers for Its Sovereign Debt

#15

Post by cm2187 »

networkimprov wrote: post #6

China's leaders have historically shied away from this policy, so as to protect itself from the whims of foreign investors, and maintain maximum control over its economy. This reversal may point to a crisis beneath the surface, as it's probably not their preferred path...

If the debt is in yuan and under chinese law, foreign investors don't have much say on their economy.

Re: China Is Hunting for Foreign Buyers for Its Sovereign Debt

#16

Post by zawazzi »

projectramo wrote: post #5
wonderwonder wrote: post #2

I wonder if China is seeing any impediments due to people being loathe to invest in a country where personal freedoms are very restricted and millions of their citizens are swept up in re-education camps. I would be hesitant from a personal standpoint but most larger wealth funds are probably not so restricted. By the same token neither are most manufacturers.

I think most large wealth funds would have an issue too. That would be my guess.

By the time it gets repackaged into derivatives and index funds, who will really know. Investor's aren't amoral, just creating plausible deniability via complexity.

Re: China Is Hunting for Foreign Buyers for Its Sovereign Debt

#17

Post by ajross »

wonderwonder wrote: post #2

I wonder if China is seeing any impediments due to people being loathe to invest in a country where personal freedoms are very restricted and millions of their citizens are swept up in re-education camps. I would be hesitant from a personal standpoint but most larger wealth funds are probably not so restricted. By the same token neither are most manufacturers.

Sort of, but that's not why. Modern authoritarian governments, historically, are volatile. The Soviet Union lasted about 75 years, and that's pretty much a record for stability. The PRC is just getting to that age now.

Who's going to buy a 30 year bond from a government that has about even odds of surviving to maturity?

Re: China Is Hunting for Foreign Buyers for Its Sovereign Debt

#18

Post by unioncalia »

wonderwonder wrote: post #2

I wonder if China is seeing any impediments due to people being loathe to invest in a country where personal freedoms are very restricted and millions of their citizens are swept up in re-education camps. I would be hesitant from a personal standpoint but most larger wealth funds are probably not so restricted. By the same token neither are most manufacturers.

Not only can you not move money out of China if you have some invested there, you can't even leave! => The US government is warning Americans that if they visit China they may not be able to return home https://www.businessinsider.com/us-china-travel-advisory-201...

Re: China Is Hunting for Foreign Buyers for Its Sovereign Debt

#19

Post by wonderwonder »

unioncalia wrote: post #18
wonderwonder wrote: post #2

I wonder if China is seeing any impediments due to people being loathe to invest in a country where personal freedoms are very restricted and millions of their citizens are swept up in re-education camps. I would be hesitant from a personal standpoint but most larger wealth funds are probably not so restricted. By the same token neither are most manufacturers.

Not only can you not move money out of China if you have some invested there, you can't even leave! => The US government is warning Americans that if they visit China they may not be able to return home https://www.businessinsider.com/us-china-travel-advisory-201...

Which is sort of part of my concern. If you visit to sort out some sort of issue concerning your large bond investment, what is to stop them from just disappearing you. No rights for the citizens generally means no rights for investors or visitors either.

Re: China Is Hunting for Foreign Buyers for Its Sovereign Debt

#20

Post by ianhawes »

kissickas wrote: post #9
cm2187 wrote: post #3

Can someone explain to me why an investor would want to invest in a foreign debt and currency from a country that has capital controls and a history of undervaluing its currency?

A possibility is that they believe that country no longer has much to gain from undervaluing its currency as its neighbors are starting to be real competitors in manufacturing, and now they're more interested in building up a consumer class.

This. China is transitioning quickly to a consumer based economy from manufacturing.
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