Renminbi internationalisation is entering a new phase, with the currency no longer structurally undervalued and set to be more widely used for investment globally, argues a management trio at HSBC.
Speaking at a press briefing in Hong Kong yesterday, Anita Fung, the bank’s Hong Kong chief executive, voiced her expectation that RMB appreciation would fall to 2% for 2012, against an annual average of 4.5% since the renminbi was first de-pegged from the US dollar in 2005.
Fung suggests, too, that the widening of the RMB trading band against the dollar from +/-0.5% to +/-1% on April 16 should be seen as a positive signal that Chinese authorities are intent on running “a more flexible and market-driven regime”.
She shrugs off the recent decline in CNH deposits in Hong Kong (a 12% drop from Rmb627 billion in November last year to Rmb554 billion in March this), attributing this to a balancing of RMB-denominated import/export trade flows. This is combined with the creation of new channels for RMB outflow, including dim-sum bond issuance, RMB foreign direct investment and the RQFII scheme.
But in addition to its function in trade settlement, Fung also notes her expectations that the RMB will increasingly be used for investment internationally as the currency's internationalisation progresses.
HSBC itself issued the first dim-sum bond in London on April 18 – hoping to create momentum in the city’s offshore RMB market.
Justin Chan, the bank’s deputy head of global markets for Asia-Pacific, notes the Rmb2 billion bond issue ended up being twice as large as initially expected, with strong demand among European investors who accounted for 60% of overall subscriptions.
HSBC is firmly of the view that London will be a key outpost in expanding the geographic reach of renminbi -- playing a complimentary rather than competitive role alongside Hong Kong in this regard. London has the advantage of being the world's biggest offshore US dollar market and foreign exchange centre, with a relatively convenient timezone for both East and West.
According to the City of London RMB report, as of April, renminbi deposits in London were in excess of Rmb109 billion and the city is estimated to be 26% of the global offshore RMB spot market.
Paul Gooding, HSBC's head of European RMB development, notes that while renminbi personal banking in London is likely to remain less than in Hong Kong, the value of private banking in RMB is substantial with a total deposit base of more than Rmb3.6 billion. "This plays to London's strength in wealth management," he says.
On the issue of the decline in CNH deposits in Hong Kong, Chan takes a more holistic view, combining offshore RMB-denominated certificates of deposit and bonds to create liquidity of Rmb800 billion.
"Leveraging Hong Kong's experience, London can act as a Western hub for RMB and tap Hong Kong's liquidity pool, if necessary," he adds.
In particular, Chan expects London to serve as an expanded RMB debt financing platform for UK and European corporates.
Nevertheless, Fung stresses that Hong Kong will continue to be the premier offshore RMB centre with the most developed product offering and services and highest liquidity.
She notes, too, that it is gathering momentum in terms of the scale, variety and tenor of dim-sum bond issuance, putting it in a better position in terms of price discovery.
Gooding confirms that when issuing its dim-sum bond in London HSBC referred to Hong Kong to define the coupon rate. However, he does not expect there to be an RMB Libor in London anytime soon.