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Standard Chartered has become the first non-Chinese bank to close a USDCNY forward trade in Singapore.
International dollar bonds by Chinese issuers saw a slight widening of spreads on Wednesday, following Moody’s downgrade of China’s sovereign rating, according to sister publication GlobalCapital Asia.
Renminbi is now behind the Swiss franc in terms of the share of global payments, according to SWIFT’s RMB tracker.
Three Panda bonds emerged in the last two weeks. Daimler returned to raise Rmb4bn ($582m), China Power New Energy Development Company debuted with a green Panda, and China Citic International Bank became the first financial institution to issue a Panda since November 2016.
Market participants told GlobalRMB that they are preparing for a July 1 launch of the Bond Connect , and they expect an announcement on which institutions will act as market makers on June 25.
While the Bond Connect will open up more hedging tools beyond FX for investors in renminbi-denominated assets, it may also create issues for those investing in China via older systems.
The Moscow Exchange (MOEX) signed an agreement with Shanghai Stock Exchange (SSE) to develop renminbi and Russian rouble-quoted debt and equity products for investors on May 25, shortly after MOEX agreed to share real-time data with China’s four largest financial information vendors.
FX:
PBoC is planning to move to a new formula to calculate the daily renminbi fix against the dollar, according to a May 26 media report. Banks that provide quotes for the fix will need to consider the renminbi’s exchange rate at the last close and changes in the baskets of currencies, on top of a new counter-cyclical adjustment factor.
The new formula will reduce the impact of volatility between 4.30pm , when trading stops, and when trading begins the morning after, according to the report. PBoC has yet to confirm such plans.
PBoC's renminbi fix against the dollar came in almost unchanged at 6.8698 on Friday morning, merely 3bp weaker from Thursday. In the spot market, the CNY was trading at 6.8624 as of 10.58am, with the CNH at 6.8431, both up 0.09% from their previous close, according to Bloomberg data.
The strengthening of CNH and CNY this week, which saw the two gain 0.5% on the dollar so far, came despite Moody’s sovereign rating downgrade on Wednesday, reflecting China’s defiance to the agency’s decision, said Stephen Innes, senior trader at OANDA.
He noted that Chinese banks had been busy supporting the CNH.
“The state-owned banks are big sellers of the dollar as the PBoC wants the currency strong and stable,” said Innes. “Dealers were testing the water buying dips early in the week post fixing, […] dancing with the Tiger has again proven to be a dangerous pastime in the currency markets.”
The dollar index was trading at 97.324 as of 10.46am, up 0.08% from the previous close, according to Bloomberg. The Thomson Reuters CNY reference index closed at 93.62 on Thursday, up 0.4% from its previous close.
Credit rating:
Moody’s downgraded China’s sovereign rating from A1 to Aa3 on May 23. The ratings agency, which last downgraded China in 1989, attributed the change to slowing economic growth in the country and rising debt levels.
“While ongoing progress on reforms is likely to transform the economy and financial system over time, it is not likely to prevent a further material rise in economy-wide debt, and the consequent increase in contingent liabilities for the government,” Moody’s said in a statement on Wednesday.
China’s Ministry of Finance has criticised the downgrade, describing the move as inappropriate.
“[Moody’s] overestimated the difficulty facing China’s economy, and underestimated the ability of the Chinese government to deepen structural reform and increase overall demand [in the economy],” said a spokesperson on May 24.
Regulators:
China will ease restrictions on foreign investment in services, manufacturing and mining, according to Xinhua. The announcement came on May 23, following a government meeting chaired by president Xi Jinping. The meeting concluded that the move is an important step to push for another wave of opening measures for the economy.
Citic Securities has been punished by regulators for helping the Shanghai entity of US-headquartered hedge fund Citadel Securities place bearish stock trades in 2015, according to a filing on SSE on May 25. Although Citadel was not fined, its trades led to a hefty Rmb308m fine for Citic, which also needs to return Rmb62m worth of profits.
PBoC held its first derivatives seminar with the Federal Reserve Bank of Chicago on May 23, according to an announcement by Shanghai Clearing House (SHCH). The closed door , high-level seminar was attended by Pan Gongsheng, deputy governor of PBoC, and Charles Evans, chair of the Chicago Fed.
Speaking at the Shanghai Derivatives Market Forum on May 25, Fang Xinhai , vice-chairman of the China Securities Regulatory Commission, said that the regulator is considering allowing foreign investors to take part in the domestic futures trading of crude oil and iron ore, noting that it is an important step in China’s financial reform. China has been planning the launch of an oil futures contract open to foreign investors for a number of years.
Indices:
Uncertainty remains over whether MSCI will include Chinese A-share in June, Henry Fernandez, MSCI’s CEO, told media on May 24.
“We’re making a lot of progress on all fronts but it doesn’t mean we’ll get there,” said Fernandez. “There’s still over a hundred stocks that are suspended in the country, which is by far the largest in any emerging market.”
In a statement on Monday, MSCI said it will make its decision on A-share inclusion public on June 20 at 10:30pm Central European Summer Time.
Investment:
Vanguard has set up its first WFOE in China, the asset manager said in a press release on May 25. The Shanghai-based WFOE will provide services such as investment management, investment consulting, investment research, investor education and business development.
“We are optimistic about the Chinese market and excited about the long-term opportunities to serve Chinese investors,” said Charles Lin, managing director and country head of China at Vanguard. “The launch of our WFOE is our first step to lowering the cost of investing in China and help Chinese investors reach their investment goals.”
But consultancy Z-Ben Advisors, which expects Vanguard to follow in Fidelity’s footsteps and register the WFOE as a local private fund, said Vanguard’s WFOE was likely to struggle. This was due in large part to Vanguard’s refusal to pay for the distribution of its exchange-traded funds.
The consultancy noted that, judging from the asset manager’s experience in Hong Kong, a decision to replicate the same approach in China was likely to be problematic.
“Much like its own attempts in Hong Kong, the need to pay for distribution in China will hamper any initial product and fund raising results,” said Z-Ben on Thursday. “It will be an uphill fight to attract demand and fund flows.”
Trade:
The Chinese Ministry of Commerce has countered claims that China was a currency manipulator. In a report on Thursday focused on trade between China and the US, the ministry said the Mainland has been working towards building a market-based exchange rate, and noted that the US Treasury stopped short of branding China a currency manipulator in its latest report.
Clearing house :
SHCH held a seminar on regulations and risk management in the global financial markets on May 24 in Shanghai. The event was attended by PBoC’s head of research, Xu Zhong, and David Marshall, director of financial markets at the Chicago Fed.
Hubs:
Offshore RMB deposits in Singapore stabilized in the first quarter of 2017, growing by Rmb1bn to Rmb127bn compared to the end of 2016, according to provisional data by the Monetary Authority of Singapore. The latest reading is still a 29.1% drop from a year earlier.