The week in renminbi: Central bank tightens grip again on CNY, September start for Stock Connect investor ID, foreign ownership cap lifted on futures companies
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The week in renminbi: Central bank tightens grip again on CNY, September start for Stock Connect investor ID, foreign ownership cap lifted on futures companies

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The People’s Bank of China brings back old policy to control RMB exchange rate, mainland and Hong Kong authorities set the date for launching investor ID for northbound Stock Connect transactions, and the Chinese securities watchdog allows foreign investors to take majority stakes in futures companies.

  • China has re-introduced a measure it abandoned earlier this year to stabilise the renminbi, according to an announcement by the China Foreign Exchange Trade System (Cfets) on Friday night, which the PBoC published on its website on the same day .

    Th e PBoC introduced the counter-cyclical factor in May 2017 to prevent drastic movements in the RMB exchange rate. But regulators stopped using the factor in January, claiming that the policy had completed its mission by eliminating what it considered irrational movements of the currency .

    Las t Friday, the central bank said the measure, which affects the calculation of banks’ FX quotes used to calculate the daily fixing, was back. The PBoC attributed the move to a stronger dollar and ongoing trade conflicts, but was keen to stress that the demand for the policy came from market participants.

    “Based on their judgement of the market conditions, quoting banks for the CNY fixing against the dollar have been adjusting their counter-cyclical factor one after another in August, in order to offset the cyclical sentiments in an appropriate way,” said the Cfets statement .

    Th e PBoC’s intervention shows that it will not let the currency trade beyond 7 against the dollar, Tommy Xie, head of Greater China Research at OCBC Bank, wrote in an August 27 note.

    “This is a very strong signal in our view,” he said. “China has clearly drawn the line in the sands.”

    The PBoC was criticised by analysts for tightening its grip on the RMB when it first introduced the counter-cyclical factor. But against the backdrop of an intensifying trade war, the re-introduction of the policy should now be welcomed by international investors, Stephen Innes, head of trading for APAC at FX broker Oanda, wrote in a memo on Monday.

    “This move does signal the PBoC has no intention of moving into a full scale currency war in the trade war escalations,” he said.

    The CNY fixing against the dollar was set at 6.8508 this morning, stronger by 202bp from the previous session. The CNY and offshore renminbi (CNH) were trading at 6.8139 and 6.8023 against the dollar at 11.55am on Monday, stronger by 0.94% and 0.05% from the previous close, according to Wind data.

  • The China Securities Regulatory Commission (CSRC) and Hong Kong’s Securities and Futures Commission (SFC) have reached an agreement to begin using investor ID for Stock Connect northbound trading on September 17, the two regulators said in separate statements on August 24.

    “The investor identification regime will facilitate more effective monitoring and surveillance by the CSRC and Mainland stock exchanges to safeguard market integrity,” said the SFC .

    Authoritie s on both sides of the border started planning for the launch last October. After the launch, Stock Connect investors will no longer be exempted from disclosing their identities — a requirement that all mainland investors need to comply with — when trading onshore stocks.

    The implementation of investor ID will rely on brokers assigning a unique number to their clients, which will be forwarded to mainland exchanges, according to an August 24 announcement by Hong Kong Exchanges and Clearing.

  • Foreign companies can start applying to hold 51% majority stakes in futures companies with immediate effect, the CSRC said in an August 24 announcement. The foreign ownership cap in these companies will be abolished after three years, in line with the policy on the opening up of the financial sector set out by the country’s leadership, said the CSRC.

    The move came a day after the China Banking and Insurance Regulatory Commission formally removed the foreign ownership cap in banks and asset management companies.

  • Bank of China’s Cross-border RMB Index gained 24 points and stood at 288 points in the second quarter, thanks to an uptick in RMB-denominated settlement for cross-border trade, the bank said in an August 24 report. RMB settlement for current account and direct investment amounted to Rmb1.94tr ($283.2bn) in the second quarter, up 11% quarter-on-quarter, according to the report.

    Despite rising trade tensions, analysts at the bank reckoned the index will rise by two points to 290 in the third quarter, noting that the fundamentals of the Chinese remain sound and the RMB, while fluctuating, is trading in a reasonable band .

    Th e index measures settlement for RMB-denominated trade and investment.

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