Nov 2013 - London Stock Exchange Group · Nov 2013. This document is for the seminar only and not...

An Overview of

Offshore RMB Market

Nov 2013

This document is for the seminar only and not for further distribution, display, extract or reprint. Investment involves risks..

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Contents

1. Outlook of RMB Internationalisation

2. Implications for Offshore RMB Bonds


33

Section 1

Outlook of RMB Internationalisation


4

Second-largest global economy

Largest exporter and second-largest importer in the world

Inbound foreign direct investment (FDI) ranks first globally

China continues to accelerate regulatory reforms towards RMB internationalisation

RMB – The next international currency

4Source: BlS, The Wall Street Journal


5

RMB Cross-border Trade SettlementCross-border RMB trade settlement business has developed rapidly with more balanced two-way trade flow

5

The volume of cross-border RMB trade settlement in the second quarter of 2013 jumped 55%, compared to the same period in 2012

360598 583 539 580

672799

1004 1040889

6.9%

10.2%9.4% 8.9%

10.7% 10.8%12.6%

14.0%

16.6% 16.5%

0

200

400

600

800

1000

1200

2011Q1 Q2 Q3 Q4 2012Q1 Q2 Q3 Q4 2013Q1 Q2

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

5.52

1.71.17

0

1

2

3

4

5

6

2010 2011 2012

Inflow / Outflow Ratio

RMB Cross-border trade settlement (RMB billion)

% of RMB trade volume among the total volume

Source: Economics & Strategic Planning Dept., Bank of China Hong Kong


6

Strengthening RMB usage outside Asia-pacificWestern developed countries are increasingly involved in RMB businesses. New offshore RMB centers will emerge, and each will have its own niche and strength

Region1H2013 1H2012 YoY

GrowthRank Value % Rank Value %

Hong Kong 1 17,031 78.6% 1 8,244 79.2% 107%

UK 2 1,121 5.2% 3 370 3.6% 203%

Singapore 3 727 3.4% 2 379 3.6% 92%

Taiwan 4 305 1.4% 9 39 0.4% 671%

France 5 271 1.3% 5 94 0.9% 190%

US 6 262 1.2% 4 105 1.0% 149%

Luxembourg 7 159 0.7% 6 71 0.7% 123%

Australia 8 151 0.7% 11 37 0.4% 303%

Germany 9 127 0.6% 7 56 0.5% 129%

Malaysia 10 91 0.4% 16 15 0.1% 499%

Total 21,670* 100% 10,403* 100% 108%

*Note: SWIFT recorded both sides of an transaction. To adjust the value to equate to the same reporting convention used by BIS, the total value should be divided by two.

Top 10 Regions – Payment (billion USD)

6Source: SWIFT


7

RMB as a potential reserve currency – for trade settlement

Bilateral currency swap agreements: 23 countries and regions, RMB 2.5 trillion

Several central banks/monetary authorities have already borrowed RMB funds from the currency swaps

Growing bilateral currency swap lines are to promote the use of RMB in global trade and finance, also a step towards RMB’s achievement as a reserve currency

UAE, 35bn

South Korea, 360bn

Pakistan, 10bn

Iceland, 3.5bn

Belarus, 20bn

Hong Kong, 400bn

Thailand, 70bn

Malaysia, 180bn

Indonesia, 100bnSingapore,

300bn

Mongolia, 10bnKazakhstan, 7bn

Uzbekistan, 0.7bnTurkey,

10bn

Australia, 200bnArgentina, 70bn

Brazil, 190bn

UK, 200bn

Ukraine, 15bn

New Zealand, 25bn

Hungary, 10bn

Albania, 2bn

7Source: People’s Bank of China

ECB, 350bn


8

Oct 2010 Jan 2012 Sep 2012 Apr 2013

• Malaysia’s central bank bought RMB-denominated bonds for its reserve

• South Korea and Japan announced plans to invest in RMB denominated assets with their foreign reserves

• Nigeria’s central bank added RMB to its reserves and plans to gradually increase its RMB holding to 10%

• The Reserve Bank of Australia will invest 5% of its total foreign reserves in Chinese sovereign bonds

Jun 2013 onwards

• Central Banks of Indonesia, Thailand, Cambodia and Nepal have started tilting their reserves to RMB-denominated bonds

Jul 2012

• ADIA, government pension fund of Norway, Qatar Investment Authority, Kuwait Investment Authority and Temasek are to invest in RMB

RMB as a potential reserve currency – for investment Central banks are diversifying holdings into RMB, already helping RMB gain reserve-like attributes. Over the long run, RMB is likely to become one of the major international reserve currencies

Source: People’s Bank of China


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Section 2

Implications for Offshore RMB Bonds


10

0

200

400

600

800

1000

1200

1400

Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13

Offshore RMB Bonds Rising Supply & Demand

* Including Certificate of Deposits

Source: BOCHK Asset Management, Bloomberg, HKMA

Aug 2009 – Oct 2013

Offshore RMB Deposit in Hong Kong

Corporate

CommercialBank*

RM

B b

illio

n

China Policy BanksSovereign

Supranational

Bonds

Note: Newest offshore RMB deposit data is for Sep 2013. Newest bonds’ data are for Oct 2013.


11

65 50

203

433

749821

11071172

244366 405

565542

152

0

200

400

600

800

1000

1200

1400

Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Oct-13

RM

B in

bill

ions

Market Capitalisation in RMBNumber of Outstanding Issues

Offshore RMB Bonds A Growing Asset Class

11Source: BOCHK Asset Management, Bloomberg, 31 Oct 2013


12

RMB Offshore Deposits Globally

Hong Kong

RMB Deposit:730 Billion

(USD 119.67 Billion)Sep 2013

London


(USD 5.73 Billion)Feb 2013

Taiwan

RMB Deposit:~100 Billion

(USD 16.39 Billion)Oct 2013

Offshore RMB Clearing Centres

Source: HKMA, MAS, Bloomberg for London, China Post for Taiwan, China.org.cn for Paris, Ministry of Finance, Luxembourg Note: 1 USD = 6.1 RMB

Paris


(USD 1.64 Billion)Jul 2013

Luxembourg


(USD 6.56 Billion)Aug 2013

Singapore


(USD 22.95 Billion)Jul 2013


13

-4

-2

0

2

4

6

8

10

12

0 2 4 6 8 10 12

Onshore RMB vs Other Currencies

RMB

Asia EM Currencies

Europe EM Currencies

Global EM Currencies

Latam EM Currencies

EUR

GBP

Risk and Return vs USD from 1 Nov 2010 to 31 Oct 2013

% Volatility (per annum)

Ret

urn

vsU

SD

Asia EM Currencies = JPM Emerging Local Markets ELMI Plus Asia Global EM Currencies = JPM Emerging Local Markets ELMI Plus CompositeEurope EM Currencies = JPM Emerging Local Markets ELMI Plus Europe Latam EM Currencies = JPM Emerging Local Markets ELMI Plus Latin

13Source: BOCHK Asset Management, Bloomberg


14

RMB (CNY)’s Resilience in the Last Two Financial Crises

1997

Jan 1997 to

Dec 1998

Maximum depreciation against USD

RMB: 0% JPY: 21% down

ADXY *: 27% down

PHP: 42% down

THB: 54% down

KRW: 57% down

IDR: 85% down

*ADXY: JPMorgan Asia Currency Index

80

60

40

20

100

1998 1999

2008

90

80

70

60

100

2009

Jan 2008 to

Dec 2009

RMB: Appreciated 7%ADXY *: 11% down

PHP: 18% down

THB: 18% down

IDR: 25% down

KRW: 41% down

Asian Financial

Crisis

Global Financial

Crisis

RMB

RMB

14Source: BOCHK Asset Management, Bloomberg


15

Market Comparison: CNH Bonds vs Other Bonds31 Dec 2010 to 31 Oct 2013 (USD terms)

2011 2012 2013

130

115

110

105

100

95

120

125

FTSE - BOCHK Offshore RMB Bond Index – much lower volatility

15

2011 2012 2013

Source: Bloomberg


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ConclusionsInvestment opportunities Offshore RMB bonds:

Yield pick-up in both nominal and real terms

Diversification-low correlation with other major bond markets

Currency appreciation potential

Market segmentation conducive to active management

Opportunities arisen from RMB internationalization

A new tool for wealth storage

Advantages of the FTSE-BOCHK Offshore RMB Bond Index Series

Combining the index expertise of FTSE and market knowledge of Bank of China (Hong Kong) Ltd

Independent index committee for good Corporate Governance

Part of the FTSE global index family for Quality and Consistency

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Notes and Disclaimers

Information herein may be obtained from sources believed to be reliable, but BOCHK Asset Management Limited does not guarantee the accuracy of the information.

The opinions expressed herein should not be considered to be a recommendation or solicitation to buying or selling of any securities or products.

Investment involves risks. Past performance is not indicative of future performance. Investor may lose substantial part of the investment.

Investor should not make investment decision based only on this material and should read together with the Explanatory Memorandum (“EM”) for more information. If in doubt, investor should obtain independent professional advice.

This document is issued by BOCHK Asset Management Limited and has not been reviewed by the Securities and Futures Commission (“SFC”) of Hong Kong.

SFC authorization is not a recommendation or endorsement of a product nor does it guarantee the commercial merits of a product or its performance. It does not mean the product is suitable for all investors nor is it an endorsement of its suitability for any particular investor or class of investors.


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Thank you

Nov 2013 - London Stock Exchange Group · Nov 2013. This document is for the seminar only and not...

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