Hubs news:
Grim is perhaps the best word to describe offshore renminbi deposits after Hong Kong — home to the world’s largest CNH deposit base — recorded the largest single month drop on record. RMB deposits in Hong Kong fell by a staggering 12.9% in December 2016 to Rmb546.7bn ($79.5bn), according to Hong Kong Monetary Authority (HKMA) statistics. But things are even more daunting on a yearly basis with RMB deposits down 35.8% compared to 2015. Unsurprisingly, the HKMA has attributed the drop to a dwindling interest in RMB assets as a result of the currency’s sustained depreciationover the past one and a half years.
Market news:
Natixis reduced its fourth quarter 2016 China capital outflow estimate to $203bn from $224bn based on newly released data from the Chinese authorities. The decrease was down to smaller outflows in December, which consisted almost entirely of foreign currencies rather than renminbi movement. This composition is in stark contrast to the whole of Q4 in which the renminbi held a 28% share. For the full year, Natixis estimated that China experienced $885bn of outflows with 70% leaving in the form of foreign currencies and the remaining in renminbi.
Belt and Road news:
Be warned. China’s ambitious Belt and Road initiative could be risky as associated projects are unlikely to demonstrate a level of commercial viability that would be required to attract domestic or foreign investors, according to a Fitch report last week. One of the key arguments the rating agency highlighted was Chinese banks are unlikely to be able to identify profitable projects and manage risks better that their international counterparts given that they do not even have a good enough track record of doing so domestically especially in infrastructure projects. In addition, the implied backing of projects by the Chinese government is also likely to lead to complacency.
FX news:
The CNH performed well against the US dollar during the holiday period and was trading at Rmb6.8327 on Wednesday morning. That translates to a strengthening of 0.5% from January 27, or Chinese New Year Eve. Year-to-date, the CNH has strengthened by 2.03% against the greenback. On the other hand, the USD/CNY was unchanged at Rmb6.884 with China off since January 26.
But the CNH’s strong performance in 2017 has not dissuaded Taiwan’s Mega International Commercial Bank (Mega Bank) from advising its clients to not hold long positions in renminbi products, according to local media reports. Mega Bank said it is apparent that the trend for the renminbi is still to depreciate against the dollar as recent measures by the Chinese authorities to abate capital outflows have yet to be proven effective.