February 12 marks the start of a new lunar year. People around the world, not just those of Chinese ethnicity, will be celebrating. In Singapore, where I live, we are marking the occasion the best we can under the extraordinary circumstances we live in.
I am looking forward to the Year of the Ox, an animal that’s valued in many eastern cultures for its strength, determination, diligence and dependability. We can all benefit from some of those qualities, following the aptly-named Year of the Rat we’re saying goodbye to.
The ox is the second animal sign of the 12 signs that comprise the Chinese zodiac. The animals are derived from Chinese folklore and they are used to name the years. Each animal is attributed specific characteristics that, it is believed, can affect a person’s luck.
I will also be looking forward to this "new year" because it may mark the beginning of a bright future for many of the securities that we follow in China’s US$12 trillion onshore bond market. Chinese bonds benefit from many of the qualities associated with the sturdy ox.
For example, oxen are strong. Back in the day, they provided the muscle to till the fields that supported families and, perhaps, entire villages.
China’s bonds benefit from a strong national economy, which posted GDP growth of 2.3% in 2020—one of the few economies to grow last year. The authorities were quick to bring Covid-19 infections under control, as policymakers provided economic stimulus to keep growth from straying too far from expectations.
Oxen are also associated with determination, striving tirelessly towards a distant goal, unwavering and with no complaints.
China is striving towards a carbon-neutral future and this will benefit bond issuers. The goal is to achieve a net-zero-carbon economy by 2060. This will be a mammoth undertaking requiring considerable investment in tackling the causes of climate change. A conservative estimate is some US$163 billion a year over the next 40-odd years.
A lot of the financing will have to come from the bonds markets. Companies are also being forced to adapt to the realities of a low- or net-zero-carbon world. The immediate pain will lead to better corporate resilience and help drive future performance.
An ox is diligent. Straining against the yoke, it overcomes the soil’s resistance to plough a field and make it ready for planting.
The bond market has benefited from the diligence of regulators who spent years fighting against inertia to deliver capital market reforms. Today, China’s bonds are more integrated into international capital markets than at any other time in history.
Since 2019, yuan-denominated Chinese government bonds (CGBs) have been added to three influential global indices. This is well-deserved recognition of the tremendous progress in market access for foreign investors.
Finally, the ox is, above all, dependable. Day in, day out, come rain or shine, the methodical ox is there tilling the fields and performing its duties.
China’s bond market demonstrated similar dependability last year. In March, amid growing panic as Covid-19 infections spread beyond Asia, trading ground to a halt in nearly every capital market around the world.
Liquidity dried up even in the US Treasury market, usually considered the safest asset class. However, on the other side of the world, CGBs continued to trade without a hitch, surprising even seasoned market watchers.
The Year of the Ox will undoubtedly bring many more challenges in 2021, but I choose to be optimistic. But even if you don’t believe in the supernatural powers of the Chinese zodiac, there are many reasons to feel good about the future of China’s bond market.
Adam McCabe is head of fixed income—Asia Pacific and portfolio manager for the Aberdeen Asia-Pacific Income Fund (Ticker: FAX), Aberdeen Standard Investments.