French bank Société Générale sees a huge surge in demand for offshore renminbi-denominated products in Hong Kong, provided Beijing continues to allow such instruments to develop.
Over the last few months China has accelerated the pace of the internationalisation of its currency with a series of measures. This culminated in the landmark offshore renminbi-bond issued by Hopewell Highway Infrastructure last month, the first by a non-Chinese, non-financial company.
Observers believe this shows that China is ready to open up the market and SocGen believes these bonds will be in heavy demand, especially because the renminbi is looks set to gradually increase against other currencies.
“There’s significant demand for debt issued by non-financial corporates,” Glenn Maguire, chief Asia economist at SocGen, told asiamoney.com in an interview. “If it’s renminbi debt then the fact that the renminbi will appreciate means there will be large demand.”
Demand for renminbi-denominated assets offshore will also be underpinned by a gradual trend of international investors turning away from western debt and buying emerging market assets instead because emerging economies have outperformed developed markets in the aftermath of the global financial crisis.
“When you look at international flow data the clear trend is strong flows into sovereign and corporate bonds in emerging markets,” Maguire added. “This reflects the unsustainable fiscal positions in the developed markets versus the strong growth in emerging markets and their sound and stable fiscal positions.”
According to the latest figures from the Hong Kong Monetary Authority, renminbi deposits in Hong Kong stood at Rmb89.7 billion (US$13.3 billion) at the end of June. This accounts for only 1.62% of total deposits in the city, but the figure is expected to increase significantly over time, especially if more renminbi products are issued with higher interest rates than the current deposit rates.
“If renminbi can be soaked up by the bond market with attractive yield then there’s definitely liquidity,” Maguire said. “You are going to see a liquid market develop. China is trying to promote renminbi bonds as emerging market debt and there will be demand for it.”