Investors Favor Indian Bonds After China Pushes Back On Rally
Gains from Indian bonds have surpassed those on Chinese debt this year and there are reasons to suggest the outperformance will continue.
(Bloomberg) -- Gains from Indian bonds have surpassed those on Chinese debt this year and there are reasons to suggest the outperformance will continue.
The nation’s sovereign debt has returned 3.9% in 2024 so far, compared with China’s 2.9% gain and a 0.6% loss for emerging-market government bonds, according to Bloomberg indexes. Indian securities are getting a boost from inflows ahead of inclusion into JPMorgan Chase & Co.’s index, a stable currency and lower government borrowings.
Global investors are lured by one of the world’s fastest economic growth rates at a time when China’s economy is slowing. While Indian bonds are gaining, China’s central bank has pushed back on the bull run in the debt market, which has driven yields on some sovereign notes to the lowest in more than two decades.
“We are underweight China and overweight India,” said Jae Lee, co-portfolio manager, local currency for TCW Group’s emerging markets group. “When we think about long-term growth and carry outlook, India makes a lot of sense.”
About $8 billion of inflows from overseas investors into the bonds eligible for inclusion in JPMorgan’s index since the September announcement has helped support the market.
On top of that, the Reserve Bank of India’s tight grip on the currency meant that the rupee lost less than peers. It’s down just 0.3% this year, compared with a loss of 1.6% for the yuan.
India’s bonds have also been helped by the government’s reforms and fiscal restraint. On the other hand, China this month announced selling $138 billion of ultra-long special bonds to support its economy.
Bonds in China rallied earlier this year on bets that authorities would ease policy to support a sputtering economy. But the optimism has since cooled amid fears of faster debt sales and push back from the People’s Bank of China. Returns are also constrained by yields lower than those of the US or India.
“India has passive index inclusion flow, eventual policy rate cuts and fiscal consolidation, which led to lower net supply,” said Lin Jing Leong, senior sovereign rates and currency strategist at Columbia Threadneedle Investments, adding the firm was overweight and long duration on the notes.
“China on the other hand is not expected to cut policy rates aggressively and has bond supply increasing,” she said.
--With assistance from Wenjin Lv and Tassia Sipahutar.
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