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MarketScreener Homepage  >  Equities  >  London Stock Exchange  >  Barclays Plc    BARC   GB0031348658

BARCLAYS PLC

(BARC)
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Real-time Estimate Quote. Real-time Estimate CHI-X - 10/27 12:06:28 pm
107.5 GBX   -2.73%
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Investors eye new haven in Chinese bonds as index decision looms

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09/23/2020 | 03:30am EDT
Investors look at screens showing stock information at a brokerage house in Shanghai

China's recovery from the COVID-19 pandemic and a flurry of market reforms are creating an ideal backdrop for the possible inclusion of its government bonds in a major global index this week.

Index provider FTSE Russell is widely expected to add Chinese government bonds (CGBs) to its flagship World Government Bond Index (WGBI) after an annual review on Thursday, a potentially major step for Chinese bonds as investors seek safe-haven assets in a zero-interest-rate world.

"If China is included into WGBI, it indicates that it has passed FTSE Russell's rigorous index inclusion criteria, particularly around market access and tradability," said Danny Suwanapruti, rates strategist at Goldman Sachs.

"This opens the doors for several global fixed income investors beyond index trackers, such as total return funds, multi-asset funds, DM bond funds and central banks."

China fumbled inclusion in last year's WGBI review over long-standing investor concerns, in particular the poor liquidity, limited flexibility in foreign exchange settlement and tight bond settlement cycles.

Since then, regulators have addressed many sticking points, simplifying regulations, scrapping quotas, extending trading hours and bringing market structures more in line with global norms, including a raft of measures in the past few weeks.

"A couple of weeks ago, people would have thought inclusion is going to be a close call because there were still some outstanding issues," said Suwanapruti. The recent changes have improved the chances of being included in the index, he said.

Chinese government bonds are already becoming a part of the J.P Morgan and Bloomberg Barclays index suites. But the FTSE WGBI has a far larger passive band of investors following it.

Goldman Sachs estimates there is $2.5 trillion of global cash following the WGBI, and China's inclusion could drive $140 billion into mainland bonds.

PANDEMIC PREMIUM

A WGBI inclusion would help to legitimise Chinese bonds for more investors, particularly as the People's Bank of China keeps policy steady while the rest of the world is cutting rates.

Hiroshi Yokotani, managing director of State Street Global Advisors, said Japanese investors seeking to diversify away from U.S. assets have begun to look at China as a possible destination, noting that "of course, investors are desperate for yields."

Ten-year CGBs yield 240 basis points more than their U.S. equivalents, and expectations of a strong yuan mean hedging costs are low.

Foreign interest is rising. On Monday, the largest exchange-traded fund to invest purely in CGBs listed in Singapore..

It took foreigners 22 months to go from 1 trillion to 2 trillion, official data shows. Just fourteen months later, at the end of August, foreigners held Chinese bonds worth 2.8 trillion yuan ($412.61 billion), nearly 3% of all outstanding bonds, and 9.2% of CGBs.

The structure of inflows has also shifted. In 2017, short-term debt instruments, such as certificates of deposit, made up a large proportion of inflows as "less sticky" investors bet on the yuan appreciating, said Min Dai, Morgan Stanley's head of Asia ex-Japan macro strategy.

There are now more mutual funds and pension funds investing primarily in bonds, Dai said. He expects foreigners to own around 20% of CGBs by the end of 2030.

($1 = 6.7861 Chinese yuan)

(Reporting by Andrew Galbraith; Additional reporting by Hideyuki Sano in Tokyo; Editing by Vidya Ranganathan and Simon Cameron-Moore)

By Andrew Galbraith


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Financials
Sales 2020 21 526 M 28 066 M 28 066 M
Net income 2020 1 072 M 1 397 M 1 397 M
Net Debt 2020 - - -
P/E ratio 2020 17,2x
Yield 2020 1,17%
Capitalization 19 175 M 24 960 M 25 002 M
Capi. / Sales 2020 0,89x
Capi. / Sales 2021 0,92x
Nbr of Employees 80 800
Free-Float 99,6%
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Mean consensus OUTPERFORM
Number of Analysts 24
Average target price 145,09 GBX
Last Close Price 110,52 GBX
Spread / Highest target 113%
Spread / Average Target 31,3%
Spread / Lowest Target -33,9%
EPS Revisions
Managers
NameTitle
James Edward Staley Group Chief Executive Officer & Director
Nigel Paul Higgins Group Chairman
Mark Ashton Rigby Group Chief Operating Officer
Tushar Morzaria Group Finance Director & Executive Director
Timothy James Breedon Independent Non-Executive Director
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