Regulators:
The PBoC has scrapped a requirement for financial institutions to set aside cash when buying foreign currency forwards, said Financial News, the PBoC’s official newspaper, on September 11. The rule, established in 2015, required financial institutions to set aside 20% of their investment in FX forwards at the central bank.
The reversal shows that Chinese officials are less concerned about capital outflow pressures than they were when the measure was introduced, said MK Tang, senior China economist at Goldman Sachs.
“[The reserve requirement] relaxation could be a precursor for incremental unwinding of other capital control measures, should the flow situation remain benign,” Tang wrote in a September 10 note.
He added that the move could allow for more two-way volatility of the CNY.
“[The] relaxation has the clear effect of lowering the cost for importers to hedge their FX liability exposures,” said Tang. “Such hedging would in turn mitigate a main negative side-effect of having a more flexible FX regime.”
Belt and Road:
KraneShares has launched an ETF to track companies involved in Belt and Road projects. The new ETF, KraneShares MSCI One Belt One Road ETF, was listed in New York on September 8, and will include stocks in the MSCI Global China Infrastructure Exposure Index. The latter contains firms from developed, emerging and frontier markets that have high exposure to China’s infrastructure development programme.
The ETF has a 45% exposure to Chinese firms, and all other countries’ weights are capped at 10% of the index, according to a document filed with the US Securities and Exchange Commission.
The Pakistan Sahiwal coal power station, a major project under the China-Pakistan Economic Corridor and Belt and Road initiatives, has commenced production, according to a September 11 statement by ICBC. The bank noted that it contributed $1.44bn of the $1.81bn investment for the construction of the power station.
Investment:
Bridgewater Associates is planning to launch an investment fund in China to trade domestic assets, according to a September 8 media report. The report did not disclose the proposed launch date or the size of the fund.
Hedge fund Man Group joined the list of firms that have received a private fund management licence in China, the firm said on September 7. The licence was given to Man Investment Management (Shanghai), a wholly foreign-owned enterprise (WFOE) set up by the firm in Shanghai that will allow the entity to launch onshore-focused funds. The firm has been in China since 2013 and was among the first to receive a quota under the qualified domestic limited partnership scheme.
Fullerton Fund Management, meanwhile, also received approval for its WFOE from the Asset Management Association of China, the firm said in a September 8 press release. Singapore-based Fullerton, which has S$17bn ($12.6bn) in assets under management, is the first Asian-headquartered fund manager to obtain a China WFOE, the firm said.
The Singapore Exchange said on September 8 that the FTSE China A50 Index futures remained the most actively traded contract in August, with a volume of 6.1m contracts, up 10% on a monthly basis, and up 2% on a year earlier. Their USDCNH futures volume also saw strong interest with a volume of 181,120, up 20% month-on-month and up 287% year-on-year.
Hubs:
Industrial and Commercial Bank of China opened its representative office in Mongolia on September 5. The new office will help facilitate economic and trade exchange between China and Mongolia through market research and project organisation, the bank said in a statement on Monday.
FX:
The PBoC’s renminbi fix against the dollar was set at 6.4997 this morning, 35bp stronger from Friday. The NEX CNH benchmark came in at 6.475 at 4.31pm on Friday, firmer than 6.5111 on Thursday.
The dollar index closed at 91.352 on Friday, down 0.34% from Thursday, according to Bloomberg. The Thomson Reuters CNY reference index closed at 96.70 on Sunday, down 0.04% from its previous close.
The trade-weighted index by CFETS closed at 95.16 on September 8, up 0.78% from the previous week, with the BIS basket and special drawing rights basket at 95.82 and 96.20, up 0.67% and 0.87%, respectively.
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