China's Australian bond ownership is bigger than we thought

The IMF's quarterly update on foreign exchange reserves included a breakdown of China's "representative portfolio", which RBC's analysts used to surmise that about 3.5 per cent of its $US3.7 billion of foreign exchange reserves were held in Australian dollars. China may own $US130 billion of Australian dollar assets, a number RBC analyst Michael Turner said was "well within the bounds of believability, and underscores the importance of China's investment in Australian dollar fixed income". RBCs Turner said that as China's reserves have begun to shrink, "a key source of demand for $A paper is likely to have been curtailed, and it seems unlikely the private sector flows on the other side of these reserve transactions will seek to find a similar home in Australian dollar fixed income." There are around $730 billion of highly rated outstanding Australian dollar bonds, implying China may own just under 20 per cent, China could represent one third of total foreign holdings, RBC said. AFR subscribers can read more (VIEW LINK)