Key developments this week:
- China will introduce a Bond Connect between Hong Kong and the mainland, which will allow foreign capital to purchase onshore Chinese bonds from overseas for the first time.
aluminiumgiant Rusal priced the country’s first Panda bond onthe same day Russia revealed a plan to open a renminbi clearing house.
- Morgan Stanley predicts inflows of $300bn into China’s onshore bond
market,if major index providers include Chinese government bonds in their benchmarks.
- Manulife became the first foreign investor to obtain its investment wholly foreign-owned entity (WFOE)
licence, allowing the asset manager to sell funds to local investors.
- Think tank OMFIF argued that president Donald
Trump’s trade policy and China’s growing corporate debt will pose the greatest risk to the stability of the renminbi in 2017.
- People’s Bank of China (PBoC) set the onshore RMB (CNY) fix at 6.8873 against the US dollar on Friday, merely 11bp up from a day earlier. On Thursday, PBoC strengthened the fix to follow the US Federal Reserve’s decision to hike rates by 253bp, setting it at 6.8862. PBoC also raised open market operations (OMO) and medium-term lending (MLF) rates by 10bp. In the spot market, the CNY was trading at 6.9058, 0.13% down as of
5pm, while offshore RMB (CNH) is trading 0.31% down at 6.8917, according to Bloomberg.
- The dollar index was trading at 100.280, down 0.08%. The Thomson Reuters CNH index (RXY) closed at 94.52 on March 16, 0.6% weaker than at this point last week.
- The trade-weighted index by CFETS is at 94.23, down 0.05% from
previousclose. Meanwhile, the BIS basket and special drawing rights (SDR) basket stood at 95.52 and 95.67, down 0.1% and 0.44% from previousclose, respectively.
- Société Générale argued that Fed’s rate hike is not the sole factor behind PBoC’s fix on Thursday, but an important one in terms of determining the timing. “It may not be a very big role, as offering 10bp for every 25bp from the Fed is at best half-hearted help to the RMB. However, the Fed’s action offered the PBoC a timing to make the move, appearing to support the argument that the interbank rate hikes are “following the market”,” sad the French bank’s report.
- The renminbi will remain stable in 2017, according to China’s premier. Li Keqiang told a press conference on March 14 that China’s foreign exchange is large enough to support import and short-term debt payments, and that China will not depreciate its currency to increase exports.
- On March 15, Bank of China released its December 2016
cross borderRMB index, which tracks the usage of the renminbi internationally. The index fell 22 points to 229 points from the previous month, marking a 47 points drop for the year. The bank attributed the small downturn to a 20% decrease in the cross borderusage of the renminbi and a mild drop in renminbi’s circulation overseas.
- As Bond Connect takes off, Deutsche Bank estimates that inflows of Rmb700-Rmb800bn will drive into China’s interbank bond market (CIBM) over the next five years. Senior strategist Linan Liu said that Bond Connect will bring Rmb300bn to the onshore bond market in 2017 alone.
- On March 14, China Banking Regulatory Commission (CBRC) and Chinese Securities Regulatory Commission (CSRC) signed a memorandum of understanding (MoU) with Guernsey Financial Services Commission (GFSC), which will ensure financial compliance in both jurisdictions.
- China will create seven new Free Trade Zones (FTZ) this year, according to local media. Should the State Council approve the plans, the total number FTZs would rise to 11. Candidates for the new FTZs include Chongqing,
- The $56bn Seoul-Beijing swap line came under strain as South Korea prepares to install the US-led
Thaadmissile system. South Korean officials are worried that China will retaliate by refusing to renew the swap line, which will expire in October 2017, according to local media reports.
- Hong Kong Monetary Authority (HKMA) followed the Fed’s decision to hike interest rates by increasing its own benchmark by 25bp to 1.25%. The move was expected given that the Hong Kong dollar is pegged to the US dollar. Speaking on March 15, Norman Chan, the chair of HKMA, said it will take
timeto observe the rate hike’s impact on Hong Kong’s housing market, and asked the public to be prudent in taking out mortgage loans.