This week in renminbi: March 6, 2017
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This week in renminbi: March 6, 2017

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The National People's Congress changed its tone on FX reform, spot markets strengthen at the start of the week, and the China Securities Regulatory Commission (CSRC) continues to push for MSCI's inclusion of A-shares in global indices.

FX:

  • China saw its National People's Congress kick off in Beijing on Sunday. The meeting saw premier Li Keqiang tweak the typical reference to the RMB FX policy outlook in his speech. He said China would keep its current reform direction of making the exchange rate more market-determined, and maintain the stable status of the renminbi in the international currency system. Analysts have noted he made no specific mention of either capital account liberalisation or relaxing capital controls.

  • In a note on March 6, Commonwealth Bank of Australia said this year's statement removed a reference made for the past three years to improvements to be made to the market-based mechanism for setting the RMB exchange rate to ensure it remains generally stable at an appropriate and balanced level.

  • Tommy Xie, economist at OCBC, said the change in phrasing does not bode well for reform.

    "This shift of policy tone signals to us that China may feel they have achieved the target of currency reform, which is likely to take a pause this year," he said in a research note. "China is unlikely to aggressively pursue more currency reform as well as pushing RMB internationalisation. Overall we think RMB is likely to play a role of supporting actor this year. This reinforced our view that RMB’s volatility this year is unlikely to be self-engineered and it may depend on the dollar movement.”

  • The PBoC followed premier Li's speech with a stronger dollar fix on Monday, set at 6.8790, up by 106bp. The spot market moved in tune, with the onshore RMB (CNY) trading 6.8918 at 10:10am , up by 0.10%, according to Wind data. The offshore RMB (CNH) has continued to see a tightening in spread versus the onshore rate, trading at 6.8907, up by 0.08% on the previous close.

  • CFETS data showed that its trade-weighted currency index ended last week on the rise at 94.28, up 0.5%. The Bank for International Settlements and special drawing rights (SDR) baskets ended at 95.62 and 96.11, up 0.5% and 0.3%, respectively, with the SDR index is at its highest since June 3 last year. Meanwhile, the Thomson Reuters reference CNY index (RXY) closed at 95.13 on March 3, up 0.3% in the week.

Equities:

  • Fang Xinghai, deputy chairman of CSRC, told a press briefing on February 28 that the regulator would like to see MSCI add A-shares to its indices.

    "It is in our view that any stock index on emerging markets, be it MSCI or others, would be incomplete without China," said Fang, according to a transcript published by CSRC. "But the decision rests with MSCI and it is purely commercial, involving a number of commercial considerations. We remain open to discussions with MSCI but unable to put a deadline on it. The reform and opening up of the Chinese capital market, including the stock markets, firmly follow the market-oriented, law-based, and international direction, unwavering at whether or not A-share is included in MSCI."

    Fang added that it continues to have discussions with MSCI on the necessary reforms that could facilitate an inclusion. Fang referenced foreign investors' concerns ontrading suspensions by onshore listed companies.

    "We should address [the stock suspensions] issue and resolve it, as the same concern is shared by domestic institutional investors," he said.

  • Fang also noted that an international board for the listing of foreign companies in the onshore equities market was being studied but that obstacles remained, including accounting standards.

    "International accounting standards frequently adopted by foreign companies, such as US GAAP and Accounting Codes of European Union, are not readily comparable in Mainland without adjustments," he said. "The costs of such adjustments, as one of the many issues, require further technical considerations. Market regulatory rules, for another, also differ in China and abroad, such as information disclosure rules. Therefore, the launch of the International Board is tied to institutional rearrangements. In short, it is on our agenda, but no specific timeline has been set."

Bonds:

  • Klaus Regling, managing director of the European Stability Mechanism (ESM) told Japanese media on March 5 that the organisation could consider RMB-denominated bonds to fund its operations – aimed at ensuring the stability of the European financial system. Regling added that dollar bonds are already in the plans for the end of this year and that other currencies like the RMB were a possibility to attract more Asian investors to its bonds.

Licences:

  • CIMB-Principal became the first Malaysian asset manager to receive a licence by CSRC this month under the RMB qualified foreign institutional investor (RQFII) scheme. Malaysia was first granted a country RQFII quota in November 2015.

    “We plan to develop and introduce more innovative products that invest in China onshore securities, as well as diversify some existing investment portfolios directly into China’s onshore equities and fixed income securities,” said Munirah Khairuddin, CEO of CIMB-Principal, in a March 5 statement.

    HSBC (Malaysia) is the RQFII trustee for the asset manager, while HSBC Bank (China) will act as China RQFII custodian.

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