Coverage:
Donald Trump has been chosen as the 45th president of the US. While it is too early to gauge how many of his campaign slogans will translate into policy, analysts are already predicting difficult times ahead for the US-China relationship.
Preparations for the upcoming Shenzhen Connect, which could go live before the end of November, have completed with a successful last trading test conducted over the November 5 week end between the Hong Kong Exchange (HKEX) and the Shenzhen Stock Exchange (SZSE).
Malaysia's central bank is putting its weight behind further infrastructure innovation to ready the local financial markets for greater RMB usage. In Thailand, meanwhile, fund manager KAsset tells GlobalRMB that it is gearing up to join the RMB qualified foreign institutional investor scheme.
Foreign investors are keen to get their hands on Chinese domestic bonds now that access has been made easier, according to a new survey. But structural issues means investors still face an uphill battle.
In the bond markets, nuclear plant firm CNEC brought some actions to an otherwise quiet dim sum bond market.
FX:
Trump may be two months away from officially setting foot in the White House, but the foreign exchange markets are already taking note. The onshore RMB (CNY) broke another barrier on November 11, with People's Bank of China (PBoC) setting the dollar parity rate at 6.8115, the lowest in over five years. In the spot market, the CNY was trading at 6.8123 against the dollar as of 11:45am, down 0.1% from the previous close. The offshore RMB (CNH), meanwhile, was also heading downward, trading at 6.8292, flat on the previous close but down 0.8% in the week.
The broader CNH trade-weighted basket index by Thomson Reuters, meanwhile, was showing signs of a recovery, hitting 94.84 on November 10, up 0.46% on the previous day close, indicating the RMB weakness was concentrated on the dollar side.
The US election had a clear effect on the derivatives markets, too. The HKEX saw new records for USDCNH and CNHUSD futures contracts on November 9, with the former seeing an all-time high open interest of 36,744 contracts, and the latter seeing 912 contracts, beating previous record of 907 contracts established just a day earlier, according to HKEX data. The USDCNH contract saw 5,941 new contracts traded on the same day, compared to an average daily volume of 1,841 contracts for the January-October period.
HKEX, in an effort to further boost RMB futures trading volume, has also extended the fee rebate programme for USDCNH futures, an HKEX circular said on November 8. Traders will be able to claim from 25% to a 100% fee rebate based on the ADV of new contracts all the way to end of December 2017. The existing programme was set to expire on December 2016.
The Hong Kong Monetary Authority said in a yearly report that the number of participating banks in its RMB clearing platform was 212 in September 2016, down from 217 at the end of 2015. Daily average turnover of RMB transactions processed by the real time gross settlement system was Rmb1tr in the same month, with RMB trade settlement in the first three quarters of this year reaching Rmb3.5tr, lagging behind the Rmb6.8tr for the full 2015.
HKMA also said that as of September, outstanding RMB loans were at a record Rmb307.4bn, up 3% from end-215.
China’s FX reserves dipped $45.7bn to reach $3.12tr in October — the lowest since March 2011, according to data from the People’s Bank of China. The country’s FX reserves has been a major source of attention in particular since China’s well-documented FX reforms last August. But in this instance, most of the fall was due to valuation effects whereas PBoC intervention only accounted for $10bn-$15bn, according to Andy Seaman, fixed income manager at Stratton Street Capital.
ANZ said the level of foreign reserves is becoming increasingly insensitive to China’s trade balance. China recorded a trade balance of $49.06bn for October with both exports and imports having fallen short of expectations. However, the Australian lender noted that exporters are increasingly holding dollar proceeds instead of selling it to banks due to expectations of further RMB depreciation. On the other hand, net outflows of cross-border payments are increasingly denominated in RMB, which has relieved the pressure on FX purchases by merchandise traders onshore.
China has unveiled the line-up of a second batch of overseas lenders allowed to participate in its onshore FX market. The list consists of five banks — China Construction Bank Sydney, CCB Seoul, CCB Singapore, Mega International Commercial Bank and Taipei Fubon Commercial Bank. The first batch of offshore lenders allowed to participate in China’s FX market was announced in October.
Stock Connect news:
Bank of China has been awarded the licence to conduct cross-border clearing services for the southbound channel of the upcoming Shenzhen-Hong Kong Stock Connect. As part of the agreement, China Securities Depository and Clearing Corp (CSDC) has picked Bank of China Hong Kong (BOCHK) as the dedicated lender for all related clearing and FX services. BOCHK will also be acting as the exclusive deposit bank for CSDC. There has yet to be a definite timeline as to when Shenzhen Connect will launch, but the word going around the street is pointing towards the week of November 21.
Regulators:
The People’s Bank of China has released the third quarter progress report for the implementation of its monetary policies. The report indicated that the global economy is still in a period of transition with little impetus for long-term growth, which means there is a need for China to remain stable in its policy actions. The PBoC said it will continue to implement monetary reforms in a measured, but progressive manner although it also stressed the importance of staying nimble in order to be able to react to sudden changes in the global environment.
Could more credit reforms be on the cards for China? The Ministry of Finance reiterated its stance that local government bonds aside, all debt issued by local government funding vehicles (LGFVs) from 2015 will not be guaranteed by the government. OCBC economist Tommy Xie said this was a reminder that China is serious about exiting the practice of implicit guarantees, which will lead to an increase in credit risks and defaults.
FTZ news:
China has expanded several FTZ-only policies to the rest of the country as part of its efforts to gradually open up its financial markets. A total of 19 FTZ measures will now be replicated throughout the country such as the registration regime for foreign investments, which is based on a negative list approach. The majority of the changes relate to trade and customs regulations. The measures are expected to come into effect before November 30.
Multilaterals:
In a speech on November 8, Arthur Yen, acting chief executive of the HKMA, told a conference that Hong Kong offered a critical mass of financial professionals that can support operations of the Asian Infrastructure Investment Bank (AIIB), in which Hong Kong is seeking membership. He also noted that in support of the infrastructure-driven Belt and Road Initiative, Hong Kong has also moved forward with establishing the Infrastructure Financing Facilitation Office in July.
At the same event, AIIB president Jin Liqun confirmed that the organisation is getting ready to approve Hong Kong's bid to become an AIIB member.
“We welcome Hong Kong’s application for AIIB membership. Hong Kong, among other applicants, is expected to become a member of AIIB in the coming months. We look forward to new members playing an active role in the Bank.”
He also noted Hong Kong's financial market could serve the AIIB.
“As a world-class financial centre with a robust business architecture, deep and active capital markets, AIIB will certainly consider Hong Kong’s strengths when it issues bonds.”
The BRICS New Development Bank (NDB) and China's Bank of Communications (Bocom) signed a memorandum of understanding (MoU) on November 10. The MoU targets strategic co-operation on co-financing, syndication, as well as cooperate in business across currency, bonds and derivatives markets, NDB said in a statement.
Takehiko Nakao, president of the Asian Development Bank, said the organisation will further partner with China on agendas such as finance and climate change. Specifically, ADB plans to further team up with the Chinese authorities on the ADB as a lender of financial resources to China, partnering in promoting regional cooperation and integration; and China as a financial contributor to ADB operations, Nakao said.
FIGs:
In its Q3, 2016 results report, HSBC said that revenues linked to renminbi internationalisation were $1bn in the first three quarters of 2016, down 29% the same period for last year. The bank is targeting RMBi revenues to reach $2bn-$2.5bn by end of the financial year 2017, according to the bank’s presentation to investors and analysts.