Bond market to remain robust despite stock rally


   While China's stock market has bounced over 20 percent from the August low, investors may not shift significant amounts of their money from bonds to stocks, analysts said.

  Chinese banks, for instance, have turned more prudent in allocating assets, buying more bonds, the banking industry's third quarter financial statements showed.

  Bond prices on the interbank market have been dipping since the announcement of IPO resumption on November 6. However, analysts believe the bond market will improve as interest rates fall. A declining appetite for risk may also add the appeal of bond market.

  The purchase of bonds is believed to lower the banks' risk as profit growth tumbles and the ratio of non-performing loan rises.

  "The returns from the real economy are declining and less high-interest products are available," said Xu Hanfei, chief bond analyst at Guotai Junan Securities. "Investors will also expect lower interest rates as their preference for risk falls as defaults increase. "

  He suggested investors buy bonds during the current market downturn.

  Guosen Securities believes the bond market will benefit lower rates on the money market as there is room for the open market rates to go down.

  Open market rates are still high compared with inflation, the securities firm said.