China’s currency and capital account restrictions have long hampered overseas investor attempts to buy into its spectacular growth story. So the birth of an offshore market providing corporates and institutional investors with exposure to renminbi-denominated assets has generated a great deal of excitement.
While it has at times been difficult to separate hype from reality, the growth of the offshore RMB market has been a major development of the past 12 months. And when it comes to understanding and unpicking this new sector, HSBC has been ahead of the game.
In November 2010, the bank’s chief China economist and co-head of Asia Research, Qu Hongbin, published Rise of the redback, the most in-depth analysis of the nascent offshore RMB market to date and a practical primer for investors. Also it placed this firmly within the context of broader policy attempts by the Chinese government to expand the role of the renminbi amid growing uncertainty about the future role of the US dollar as a global reserve currency.
The report became essential reading for investors trying to understand the fledgling RMB market. HSBC’s expertise in this field was based on its vast practical experience in the market – the bank accounted for 31.6% of the market between March 2010 and March 2011, according to Bloomberg data.
Beyond its groundbreaking RMB coverage, its Asia analysts have had a strong track record on key macro calls over the past 12 months. Qu has correctly called the approach and pace of Chinese policymaking this year – that policy tightening would mainly focus on administrative controls rather than rate hikes; and that inflation would reach its cyclical peak in the middle of the year before beginning to slow.
Frederick Neumann was among the first analysts to warn of the risks of rising oil prices for the region. He has also produced a series of thought-provoking thematic pieces on pan-Asia trends. One such example is a report in August highlighting the growing importance of intra-Asian tourism and the rise of Chinese travel in the region in particular, both for the regional economy and for regional integration efforts.
HSBC is not alone in having a strong track record on macro calls in Asia this year. Most analysts have generally called inflation and monetary policy tightening cycles right. Standard Chartered, another UK bank with an increasingly strong Asian emphasis, has challenged its rival in the research stakes.
Stephen Green and his China macro team continue to produce respected, thoughtful coverage of the Chinese economy. Anubhuti Sahay in India has generally called the Reserve Bank of India’s policy moves right. And Tai Hui’s south-east Asian research team based in Singapore has generally been correct in calling the pace of policy moves in Indonesia, Malaysia, the Philippines and Vietnam.
CLSA continues to win praise from Asia-based fund managers and investors for its strong coverage of China’s macro, ‘A’ share and ‘H’ share markets, as well as its India macro and equity coverage. Chief China strategist Andy Rothman has substantial local knowledge and connections, and his Shanghai-based team have consistently cut through the bull/bear noise, putting China concerns into a context that is instantly recognizable to those based in, or who have spent a substantial amount of time in, China.
On India, Neelakantan Krishnan correctly called the Sensex slump at the beginning of the year. CLSA’s investigative approach – it was founded by two respected regional journalists – and local knowledge have enabled it to produce a number of very strong deep-dive reports.
One such example is its 20:20:20 project, which tapped into worldview issues of that most valuable and elusive of groups – young Asian consumers – delving into their spending habits and worldviews in a way that other research houses looking at issues from high in their steel and glass towers in Hong Kong’s Central have largely failed to do.