Key developments this week:
Deutsche Borse’s Clearstream platform is planning a direct route into the China interbank bond market (CIBM) for its clients, the firm’s co-CEO told GlobalRMB.
China onshore bonds are also eligible to join the Citi Fixed Income Indices for the first time, Citi announced. Citi’s move followed last week’s publication of new guidelines on onshore FX hedging by Safe and Bloomberg Barclays’ inclusion of China bonds in a newly launched set of indices.
But both Citi and Bloomberg are cautious on the immediate market impact of the decision.
While a looming interest rate hike by the US Federal Reserve is putting pressure on the RMB, some economists believe the long-term trajectory of the currency suggests the RMB may rise steadily instead.
ICBC Asia’s co-head of global markets, Jimmy Jim, told GlobalRMB that he believes the renminbi is maturing into a two-way fluctuating currency and that market fears of depreciation might be overblown.
FX:
The dollar fix by PBoC came in slightly stronger at 6.9123 on Friday, up by 2bp. Meanwhile, in the spot market, onshore RMB (CNY) was trading at 6.9143, down 0.08%, and the offshore RMB (CNH) was trading at 6.9064, down 0.05% as of 2:25pm Hong Kong time, according to Wind data.
The dollar index was trading slightly lower at 101.91, after reaching a new high of 102.14 on March 2. The Thomson Reuters CNY reference index closed at 95.13 on March 9, unchanged from the end of last week.
Regulators:
A Safe official said that as of February 28, 2017, China’s foreign reserves amounted to $3.0051tr, up modestly by $6.9bn or 0.2% from the end of January. The official attributed the scale of the increase to the diversification effect between currencies and assets held by China’s foreign reserves, as asset prices rise and non-US dollar currencies depreciated against the dollar.
“A combination of these factors caused the scale of our foreign reserves to rise steadily,” the official said.
Moving forward, Safe expects pressure on capital outflows to ease, and foreign reserves to rise steadily in the midst of global financial markets volatility.
FTZs:
The Shanghai Free Trade Zone authority announced on March 9 that it intends to loosen restrictions on foreign investments in the banking, securities brokerage, securities fund management, futures trading and insurance sectors, according to reports by local media. The changes will come later this year as the FTZ updates its guidelines.
Hubs:
Rex Tillerson will hold discussions with China, Japan and South Korea on his first visit to the region as US secretary of state. The nuclear threat by North Korea, an issue that was reignited by the suspected murder of Kim Jong Nam in Malaysia, will likely dominate the talks. Tillerson will visit Japan and Seoul, before arriving in Beijing on March 18.
The Monetary Authority of Singapore said RMB deposits in the country had seen a 5% increase in Q4 2016 to Rmb126bn ($18.3bn), the first upward move since Q3 2015. Singapore remains the third largest offshore RMB deposits pool, trailing only Hong Kong with Rmb547bn, and Taiwan with Rmb311bn.
Meanwhile, Macau saw a further drop in RMB deposits in January 2017, down 9% to Rmb33.3bn, according to data from the Monetary Authority of Macao. This is the lowest level since May 2011 and down 47% since January 2016. Macau’s cross-border trade settlement in RMB also saw a monthly fall of 12.5% to Rmb10.2bn.
As of September 2016 — the last month for which comprehensive data is available — the global RMB deposits pool was Rmb1.233tr, down 25% from a year earlier, based on GlobalRMB estimates. The drain was primarily due to the drop in RMB deposits in Hong Kong, down Rmb230bn in the period.
According to data released by the Singapore Exchange (SGX), FTSE China A50 Index Futures remained the most active product in February with a volume of 4.68m contracts, up 5% month-on-month and down 17% year-on-year, whereas SGX USD/CNH Futures volume was 92,008, down 15% month-on-month and up 308% year-on-year.
Stock Connect:
Foreign investors have once again turned cautious on A-shares in March 2017, at least based on usage of the Stock Connect scheme. The Shanghai Connect’s northbound leg saw average daily net selling of Rmb397m, while the Shenzhen Connect saw modest average daily net buying of Rmb584m.
Internet firm NetDragon Websoft was included in the Shanghai-Hong Kong Stock Connect this week. The Hong Kong-listed company, which focuses on online games development and operation, was also included in the Hang Seng Composite LargeCap & MidCap Index.
IMF:
The IMF continues to explore how the special drawing rights (SDR) can play a greater role in the international monetary system, according to Mitsuhiro Furusawa, IMF deputy managing director.
“This could include the official SDR, SDR-denominated assets, or the SDR as a unit of account,” he told a conference on March 8. “The IMF reached a milestone last year when the renminbi was included in the SDR basket. That enhanced the SDR as a reserve asset. Also, in the last year, large SDR-denominated bonds were successfully placed in China.”