WHILE Chinese markets might look bleak at the moment, the biggest government bond sell-off of 2021 has some investors salivating at a buying opportunity. Risk aversion swept the country after China cracked down on private education firms. Bonds were no exception. And, yet, bulls including Ashmore Group and Alpine Macro are undeterred. The drivers that have made Chinese bonds the best performers in the world this year are still in place. Their higher yields, lack of correlation with other markets and China’s conservative deployment of stimulus should keep investors interested, especially since near-zero interest rates remain the norm around the world. “The Chinese bond market is very resilient,” said Gustavo Medeiros, London-based deputy head of research at Ashmore, which oversees about US$94 billion in assets. “Chinese bonds are the only major bonds in the world that will actually provide a proper protection in a global systemic event because it’s the only central bank in the world that still has a big bazooka. And Chinese bond yields are trading at a higher level than the European or U.S. bonds.” China’s stock market has been hammered this week after the government made policy changes on education companies, a move which is aimed at reducing pressure on children, parents and teachers. The contagion spread to other assets Tuesday, sending the yield on benchmark 10-year government bonds up four basis points to 2.92 percent in the biggest sell-off since November. The offshore yuan fell about 0.7 percent to the weakest level since April. Tuesday’s sell-off has been rare for a market that was seen as a magnet for foreign capital. Overseas funds net bought China’s government bonds in all but one month since the start of 2020, pushing holdings to an unprecedented level in June. Those flows helped drive 10-year yields down 23 basis points this year, the most among major markets. “The recent events shouldn’t have any long-term impact on the yuan or bonds,” said Yan Wang, chief emerging-market and China strategist at Alpine Macro. “China hasn’t done large-scale fiscal and monetary stimulus. Compared with the massive fiscal deficit and massive current account deficits in the United States, the yuan is fundamentally sound.” (SD-Agencies) | 