FX:
With the dollar index reaching a record 101.21 at the close last week, the highest level since 2003, the RMB fell further. The dollar fix was set by People’s Bank of China at 6.8985 on Monday, nearly 200bp lower than November 18. As of 10:30am, the onshore RMB (CNY) was trading 0.13% weaker at 6.8952, while the offshore RMB was flat to the previous close at 6.9072.
Despite the weakening against the dollar, RMB indices rose during the past week, according to CEIC data. The China Foreign Exchange Trade System basket index closed the week at 94.54, inching up 0.2%. The index based on the Bank for International Settlements basket of currencies rose to 95.89, up 0.4% on a weekly basis, while the index based on the Special Drawing Rights was 0.2% stronger at 95.33.
The Hong Kong Stock Exchange (HKEX) launched a new incentive scheme for RMB futures trading, applicable to proprietary traders that meet the volume thresholds of aggregate volumes, enabling them to obtain trading fee rebates of 65% for Hang Seng Index futures, or a 71% trading fee rebate in H-shares index futures.
Stock Connect:
Trading in China and Hong Kong kicked off on November 21 with no announcement on the exact date of the launch of the Shenzhen Stock Connect, which had been widely expected to go live today. The HKEX said it is holding more Shenzhen Stock Connect roadshows this week, meeting investors in Shanghai on November 23 and in Beijing on November 25.
Meanwhile, South Korean media noted that local investors invested $3.7bn in the original Shanghai Stock Connect in the first five months after it launched in November 2014, citing data from the Financial Supervisory Service. However, the subsequent collapse of the A-shares market in the summer of 2015 scared off many from the market, with investments via the scheme falling to just $76m in Q4 2015.
The China Securities Regulatory Commission (CSRC) said on November 18 that it had made the first punishment for cross-border stock manipulation by a Mainland trader via the Shanghai-Hong Kong Stock Connect. The CSRC said it targeted illegal profits worth more than Rmb40m ($5.8m), but it did not specify the nature of the illegal trading or the fines involved.
Hubs:
Carl-Ludwig Thiele, member of the executive board of Deutsche Bundesbank, said in a speech on November 16 that the internationalisation of the RMB had progressed rapidly in the past year. He noted that Frankfurt could play an important role, having been chosen as the first RMB trading hub outside of Asia in June 2014 – when Bank of China Frankfurt branch was chosen as the local clearing bank. He added the inclusion of the RMB in the SDR basket on October 1 was an important step.
“There can be no doubt that [the inclusion in the SDR] is a great political and economic triumph for China as well as an endorsement of the path to openness that the country has been treading with great determination since the end of the 1970s.
“However, there is still some way to go if the renminbi is to become as important as the other four key currencies. Foreign investors' access to the onshore capital markets in China, which is still restricted, is a case in point and underscores the necessity for Chinese policymakers to continue to resolutely press ahead with the opening up and liberalisation of the Chinese markets.”
The China-Luxembourg Chamber of Commerce (ChinaLux) and the Chamber of Commerce Luxembourg (CCL) held a Belt and Road Initiative event in Luxembourg on November 10. Professor Jean-Pierre Lehmann said in his speech that Luxembourg should seek to engage with the initiative as a response to growing anti-trade rhetoric. The CCL said in a statement that it will work on identifying opportunities for Luxembourg entities under the initiative, in particular from the logistics, technology and financial sectors.