tl;dr
UBS highlights the overlooked trillion-dollar Chinese bond market, valued at over $25 trillion and the world's second largest, as a key opportunity for diversification beyond the US dollar. Foreign investors currently hold less than 3% of this market, despite China having a 10% weight in major globa...
UBS, a global financial services giant managing over $5 trillion in assets, highlights a trillion-dollar bond market that investors are largely overlooking. The bank's latest research note emphasizes the potential of Chinese bonds to offer diversification beyond the US dollar.
China’s onshore bond market, valued at more than $25 trillion, stands as the world's second largest. However, foreign investors hold less than 3% ownership, a stark contrast to the 10% weight assigned to China in the J.P. Morgan Government Bond Index-Emerging Markets Global Diversified (GBI-EM GD). This discrepancy underscores the significant opportunity for greater international participation. Since 2019, this vast market has been integrated into key global bond indices, including J.P. Morgan, FTSE Russell, and Bloomberg, thanks to its size and accessibility.
UBS analysts cite strong structural tailwinds bolstering the renminbi, such as China’s sustained current account surplus, disciplined foreign exchange reserve management, and increased global demand amid a broader move away from the dollar. This shift mirrors JPMorgan's observation of a global de-dollarization trend, which is further illustrated by nations like China accumulating gold reserves at unprecedented rates.
According to JPMorgan, emerging market central banks—particularly those in China, Russia, and Türkiye—have driven a surge in gold demand over the past decade. Gold, viewed as a safe haven asset and an alternative to heavily indebted fiat currencies, has seen its share of foreign exchange reserves rise significantly. This evolving landscape signals a strategic rebalancing in global reserve holdings and underscores the importance of diversifying beyond traditional dollar-based assets.