CHINA will provide more foreign exchange hedging channels for overseas bond investors, as the country continues to reform its capital markets and lure foreign capital.

China has been attracting massive foreign inflows into its stock and bond markets over the past two years through a series of reforms. But the shortage of hedging tools or channels has long been a source of pain for global investors in China.

China will simplify the process for foreign institutional investors to trade foreign exchange derivatives, the State Administration of Foreign Exchange said in a notice published on its website Monday.

Foreign institutional investors will be allowed to use onshore derivatives to hedge risk exposure in China’s interbank market, the notice said.

The measures are due to take effect Feb. 1.

China’s US$13 trillion bond market, the world’s second biggest, has been a magnet for yield-hungry investors struggling in a low- or negative-yield environment in developed countries.

Foreign flows into China have been supported by the 20-month phased inclusion of Chinese bonds in the Bloomberg Barclays Global Aggregate Index, which began in April 2019.

JPMorgan will add Chinese government bonds to its emerging market local currency bond index from February 2020.

(SD-Agencies)