RQFII quota tipped for Dubai, Africa, LatAm

China is tipped to expand the RQFII programme to up to 10 more cities this year and may approve additional quotas of up to Rmb200 billion, predicted Standard Charterd's Becky Liu.
RQFII quota tipped for Dubai, Africa, LatAm

An expansion of China's renminbi qualified foreign institutional investor (RQFII) scheme this year will see the scheme expand to up to 10 new cities, said Standard Chartered.

The bank also predicted there will be additional quota worth Rmb150–200 billion ($24–32 billion) awarded to RQFII-licensed firms this year, up from Rmb142 billion in 2014.

The expected moves could see African and Latin American countries awarded RQFII status for the first time, said Becky Liu, senior rates strategist at the bank in a reserach report. She expects strong RQFII momentum both in and outside Asia, noting that the Bahamas and Mauritius aimed to become RMB trading hubs.

More renminbi clearing banks are likely to emerge in the Middle East, she added, after Doha, the capital of Qatar, was included in the RQFII programme, receiving Rmb30 billion.

Doha is the sole Middle Eastern city to have been granted a RQFII licence, and Dubai is the next most likely candidate, said Dariusz Kowalczyk, senior economist and strategist at Credit Agricole Corporate and Investment Banking. RQFII negotiations are under way between China and cities in the United Arab Emirates.

The People’s Bank of China (PBoC) has over the past year appointed 10 offshore RMB clearing banks – in Bangkok, Doha, Frankfurt, Kuala Lumpur, London, Luxembourg, Paris, Seoul, Sydney and Toronto. Of those, Bangkok, Kuala Lumpur and Luxembourg have yet not been awarded RQFII quota.

Meanwhile, Hong Kong is widely expected to receive an extra quota allocation, given that the city hit its Rmb270 billion limit last October. Analysts have been tipping an expansion of the city’s quotas since the launch of Stock Connect last November. At present, 14 RQFII-licenced firms in Hong Kong are waiting for quota approval.

Moreover, Taipei could finally go live with the RQFII programme this year, said Kowalczyk, but political obstacles may still stand in its way. Taiwan was given Rmb100 billion in quota in January 2013, but the programme is pending because the country's legislature has not yet ratified the bilateral Cross-Strait Trade in Services Agreement.

Chi Lo, senior Greater China economist at BNP Paribas Investment Partners, suggesed the renminbi being under pressure to weaken was one motivating factor for the expected RQFII expansion. Capital inflows from more RQFII centres would help underpin the currency, he said.

In a broader look at cross-border investments, Liu said foreign investors’ onshore Chinese government bond holdings could rise this year by Rmb50–100 billion to between Rmb271 billion and Rmb321 billion. This would boost total foreign holdings of Chinese bonds to Rmb922-972 billion, including both corporate and sovereign bonds.

In the report, Liu also predicted that all of the Rmb300 billion in total northbound quota under the new Shanghai-Hong Kong Stock Connect scheme will be fully utilised this year, even though the utilisation rate was only at 29% as of Tuesday this week.

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