Irish Funds has welcomed the Central Bank of Ireland’s (CBI) approval for Irish domiciled UCITS and AIFs to invest in the Chinese interbank bond market via Bond Connect.
The decision follows a CBI review of the China Bond Connect initiative and provides easier access to the Chinese interbank bond market for the EUR1.8trillion UCITS and EUR611 billion AIFs domiciled in Ireland.
Before Bond Connect, international investors wishing to access China’s bond market could use the China Interbank Bond Market (CIBM) Direct, QFII and RQFII routes. Bond Connect is an alternative, more straightforward method to access the China bond market. There is no need to obtain quotas under QFII and RQFII or implement the associated infrastructure and process.
Commenting on the updated CBI guidance, Pat Lardner (pictured), Irish Funds CEO said: “Irish Funds has been working closely with the Central Bank of Ireland to increase ease of access for Irish domiciled funds to the Chinese market and ensure all safe-keeping legal obligations are met by Bond Connect. We have long established links with China and we welcome the outcome of the review.”
“The decision is also timely given the proposed inclusion of bonds traded on CIBM in a number of internationally recognised indices with the Bloomberg Barclay Global Aggregate Index expected to include CIBM bonds from as early as April 2019 and other indices expected to follow suit.”
Subject to opening the relevant accounts, Irish regulated funds tracking those indices will be able to access the China bond market via Bond Connect. Irish UCITS wishing to access Bond Connect should review the markets list in the UCITS’ prospectus to establish if the list needs to be updated to include CIBM.”
In an official response letter from the CBI to Irish Funds, the Central Bank provided guidance to Irish UCITS and AIFs that the depositary of sub-custodian is obligated to ensure that it retains control over the bonds. The CBI is expected to update the UCITS and AIF Q&A to reflect this shortly.
This additional access to the Chinese bond market builds on existing Stock Connect access route and the first drawdown of Ireland’s 2016 Chinese RQFII quota in 2018
Ireland was granted a RMB50 billion quota in December 2016 making it one of only six European countries eligible under the scheme including the United Kingdom, France, Germany, Switzerland and Luxembourg.
