RMB round-up: RMB surges against dollar, CNH futures set new trading record, Zhejiang FTZ gets going

The year started with plenty of excitement, as the RMB gained ground against the dollar in onshore and offshore markets, activity surged in RMB futures in Hong Kong, and the third batch of free trade zones (FTZ) opened for business. Plus, a recap of our coverage.

  • By Paolo Danese
  • 06 Jan 2017
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Our coverage:

FX:

  • The RMB made global headlines in the first week of 2017. Defying expectations, the authorities managed to engineer a steep rise in the value of the onshore RMB (CNY) and offshore RMB (CNH) against the dollar. On Friday, People’s Bank of China made its strongest statement, fixing the CNY against the dollar 639bp stronger than a day earlier at 6.8668, the larger daily move in over a decade. 
  • In the spot markets, the CNY closed at 6.8767 against the dollar on January 5 and was trading at 6.8911 at 10:25am, having strengthened 0.78% in the year so far. The CNH has also gone through a dramatic week, having strengthened by 2.46% since the start of the year. In the spot market, the CNH was trading 6.8248, down 0.55% the previous close.
  • The trend reversal came at a cost, however. Offshore, the Chinese authorities intervened by buying up CNH and, as the currency started to strengthen, forced those shorting the currency to start covering their positions by buying more CNH, reinforcing the upward cycle for the CNH. The resulting liquidity squeeze was once again clearly visible in the lending rates. The overnight CNH Hibor shot up to 61.33% on January 6, up from the 38.3% rate on January 5, and five times the 12.81% rate of December 30.
  • In the derivatives markets, the volatile start to the year meant growing volumes. The Hong Kong Exchange reported that over 20,000 USDCNH futures contracts were traded on January 4, a new record and more than double the previous high of some 8,000 contracts on August 12, the day after a surprise devaluation of the CNY by PBoC.

Indices:

  • The China Foreign Exchange Trading System (CFETS) trade-weighted currency index was also set to spike following the revision of its components on December 29, which reduced the dollar’s overall weight, and the RMB’s surge against the dollar in the spot markets. The CFETS index closed at 94.83 on December 30 based on the old weights but was estimated to have reached 100.18 as of 11am on December 6, according to industry blog IICS.
  • The Thomson Reuters CNH index (RXY CNH) also jumped from 95.47 on December 30 to 96.47 on December 5, a 1.77% move and the highest level since June 24, 2016, according to HKEX data.

Stock Connect:

  • HKEX announced changes to the list of eligible securities under the Shenzhen-Hong Kong Stock Connect starting this week. The Shenzhen Stock Exchange (SZSE) added 76 stocks for trading, while 53 stocks from the existing list were made eligible for sell trades only. The total number of stocks available is now 904 up from 881.

FTZ:

  • In rare FTZ news, JMU, a Chinese B2B e-commerce platform, signed a partnership agreement with the Jinyi FTZ, located within the Zhejiang Province FTZ established last year. The new FTZ, part of the third batch of special zones announced last summer, offers corporates that decide to operate in the zone preferential tax rates, as well as special tariff, foreign exchange, and trade inspection arrangements. JMU said in a statement that it was one of the first 12 companies to sign agreements in the Jinyi FTZ.

Market News:

  • Things did not look good for the CNH in the third quarter of 2016 as revealed by the Bank of China Offshore RMB Index, which dropped by 0.06% to 1.29%. The decrease was brought about by a spike in interest rate volatility, lower RMB usage globally and, most importantly, the continued decline of CNH deposits globally. Total RMB deposits in key markets such as Taiwan, Hong Kong, Macau, Singapore and South Korea all dropped although the UK did provide some reprieve by growing Rmb14.1bn. CNH deposits stood at Rmb1.97tr by the end of the third quarter, or 1.22% of the total offshore deposits of all currencies, which was 0.06% lower than Q2 and signalling a decline for the fourth consecutive quarter.

Internet phrase of the year:

Chinese netizens have mocked the authorities for their repeated use of the expression, “There is no basis for the continued depreciation of the RMB,” despite the fact that the currency lost 6.75% of its value against the dollar during 2016.

As a result, the expression has been ­– somewhat sarcastically – named quote of the year.

no basis pboc 450px

Headline translation: "An in-depth analysis of the hottest online phrase of 2016…"

  • By Paolo Danese
  • 06 Jan 2017

GlobalRMB Panda Bonds league table

Rank Arranger Share % by Volume
1 CITIC Securities 34.81
2 China Merchants Bank Co 20.57
3 Bank of China (BOC) 17.41
3 China CITIC Bank Corp 17.41
5 Industrial and Commercial Bank of China (ICBC) 7.91

Panda Bond Database

Pricing Date Issuer Country Size Rmb (m)
1 23-Jun-17 Bank of China Group Investment China 1,500
2 12-Jun-17 China Traditional Chinese Medicine Holdings China 2,000
3 22-May-17 CITIC Bank International China 3,000
4 19-May-17 China Power New Energy Development Co China 800
5 17-May-17 Daimler Germany 4,000

Offshore RMB Bond Top Bookrunners

Rank Bookrunner Share % by Volume
1 JP Morgan 49.70
2 Barclays 10.06
2 Citi 10.06
2 HSBC 10.06
2 Bank of China (BOC) 10.06

Latest Offshore RMB Bonds

Pricing Date Issuer Country Size Rmb (m)
1 01-Jun-17 Ocean Wealth (Parent: China Orient Asset Management) China 632
2 11-Apr-17 Bank of China Johannesburg Branch (BOC Johannesburg) China 1,500
3 22-Feb-17 Ocean Wealth (Parent: China Orient Asset Management) China 850
4 28-Nov-16 Loncin Holdings China 800
5 04-Nov-16 China Nuclear Engineering Group China 1,500