Pimco says China bonds offer diversification from crowded US assets
Pimco president Christian Stracke says international investors are again considering Chinese offshore bonds as a way to diversify portfolios heavily exposed to US equities and the dollar. He described China’s bond market as relatively stable and less correlated with US assets, while cautioning that property debt remained risky.
Global investors are increasingly considering Chinese offshore bonds as an alternative to heavily concentrated US portfolios, according to Christian Stracke, president of asset manager Pimco. Stracke said non-US clients were seeking ways to reduce exposure to the US dollar and American equities after years of strong performance in those markets. He said Pimco viewed Chinese bonds as one of the least correlated and most stable diversification options among emerging markets.
He described Chinese bonds as offering “true risk-off diversification”, partly because weak inflationary pressures reduced their exposure to stagflation risks. Investors, he said, were buying them primarily for diversification rather than yield. The comments come after a US Federal Reserve interest-rate increase prompted investors to reassess global allocations.
Beijing has also been seeking to attract more overseas capital into its financial markets. Foreign institutions held 3.12 trillion yuan in China’s interbank bond market at the end of April, equal to 1.8 per cent of the total. Stracke said sentiment towards China had changed sharply from two or three years ago, when investors often described the country as “uninvestible”.
He attributed the shift partly to China’s export performance and advances in artificial intelligence, robotics and automation. Pimco has not materially altered its China positioning, he said. The firm favours Chinese policy-bank bonds, which it regards as a proxy for the central government, but remains cautious about property debt.
Stracke said restructuring in the property sector could continue for at least two more years.
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