Goldman On Potential Inclusion For China In FTSE Russell's WGBI

Goldman Sachs note that "FTSE Russell will announce on September 24 whether China will be included in their flagship World Government Bond Index (WGBI). Whilst it's a close call, we think more likely than not that China will be included into WGBI, with a target weight of 5.7%. This could generate around USD 140bn of additional index related inflows, assuming all index trackers follow the index and do not opt-out. There would likely be a grace period of 12-months, so actual inclusion would likely only start in October 2021 and inclusion would likely be phased in over 20-months through to May 2023. At the March 2020 review, FTSE highlighted areas of progress by the Chinese regulators, which includes allowing more FX counter parties, a longer settlement cycle, and bond re-openings to enhance secondary market liquidity. We have heard that investor feedback notes that while there has been notable progress on tradability and market access, it is still not yet comparable to other WGBI peer markets. As such, we think China's inclusion will be conditional that reforms persist, and that it satisfies certain criteria by September 2021, otherwise the inclusion date could be postponed."