How’s that trading on the HK-Shanghai coming for you today? We had hinted at it before in the previous couple of weeks, but it looks like the HK-Shanghai connect is delayed indefinitely with some sources saying anything from a two week to two month delay.
The Shanghai-Hong Kong Stock Connect Program is launching in mid October and significant changes to the Chinese capital markets landscape are to be expected. Also labeled as the (new?) “Through Train”, this program will give foreign retail investors access to 568 Shanghai-listed stocks, with a market capitalization of roughly USD 2 trillion, and many are already waiting in anticipation for the door to be opened. A brief analysis of the Shanghai Hong-Kong Stock Connect.
The Australia Securities Exchange reported a year on year increase on revenue and profits yesterday on the back of strong IPO performance. Net income hit A$383.2 million from A$348.2 a year before.
The Shanghai–Hong Kong Stock Connect is coming soon as dates for official testing are announced already. According to HKEx, market rehearsals will be held since late August to September, where exchange participants will conduct trading, clearing and settlement activities to verify readiness of the all involved systems.
In the latest SWIFT RMB tracker report, usage of RMB in cross-border payments involving HK and China increased 36% to 12%, but still has ways to go.
The RMB continued its relentless march towards being a trade currency with over US$15 billion in RMB bond issuance in the city-state of Singapore - more than doubling the issuance of 10 years ago.
According to the latest numbers from Ministry of Commerce of PRC, in the first 4 months of 2014, the investment into Hong Kong from Mainland and exports from Chinese mainland to Hong Kong decreased largely.
On April 10, 2014, the Chinese government approved the proposal for Hong Kong-Shanghai Stock Market Connect program, which will allow mainland investors to directly trade stocks in Hong Kong market and Hong Kong investors to trade equities in A-share markets.
Recent figures from Eurekahedge showed that the general ROI of Asian hedge funds (10.1%) surpassed that of North American hedge funds (6.3%) and Europe hedge funds (5%) for the first 3 quarters of 2013. However, among Asian countries, Japanese and Chinese hedge funds have experienced relatively high ROI while Indian and South Korean hedge funds suffered from negative ROI. Market analysts suggested that, the high ROI from China is because of the sustained and relatively fast economic growth, while the high ROI for Japan is for the massive economic stimulation.
According to the PBOC, the value of new RMB loans in the first quarter of 2013 are at a three-year high. In the first quarter of 2013, the new lending is 2.76 trillion yuan, growing by 13%, compared with 2.46 trillion yuan in the same period of 2012. It signals that the financing demands in the market start are increasing and analysts believe the total new loans will reach 9 trillion yuan in 2013. More interestingly, among the newly increased loans, 30% of the loans are long-term loans, showing a sign of a strong economic rebound in China.
In order to facilitate the RMB’s cross-border settlement and promote the global use of the RMB, China’s central bank (the PBOC) is now building an international payment system called as CIPS (The China International Payment System). This CIPS is expected to take one or two years to launch and will make cross-border RMB trade settlement more efficient and safer.
Shanghai has been authorized to become the first pilot city for a new RMB cross-border program – RQFLP (Qualified Foreign Limited Partner, RQFLP) which means offshore RMB can be raised and used for private equity investments in the Mainland. Following traditional FDI (Foreign Direct Investment) and RQFII (RMB Qualified Foreign Institutional Investors), RQFLP has become a new channel for the backflow of offshore RMB. Bank of Shanghai and the Hong Kong subsidiary of Haitong Securities (one of biggest securities in mainland China) have signed a memorandum of cooperation to be the first to issue RQFLP products in Hong Kong. The total quota is about 1 billion RMB. Bank of Shanghai will provide custody services and Haitong securities will take charge of the design and issuance of the RQFLP products in Hong Kong. After being raised in Hong Kong, these offshore RMB will enter into Shanghai for private equity investments.
We have talked about this before, but the latest chart from Reuters / BOC HK is another indication that demand for RMB denominated bonds in HK is waning as yield is creeping up once again. This is creating a bit of a knock-on effect as the cost of financing through RMB bonds rises making traditional USD bonds more attractive. We expect this to continue for the rest of the year actually as there are no near-term events that we are expecting that would change the trajectory or somehow make RMB more attractive.
Earlier this week the Hong Kong Monetary Authority published the December 2011 monetary statistics. Among all of the data, one interesting statistic stood out which was the decline in RMB deposits held in HK also called CNH.
We have talked about this trend in previous commentaries, but the relatively sharp decline could be an indicator of what is to come. One of the key reasons for the decline is no doubt the clarification by the Chinese government on the official procedures for bringing offshore RMB back onshore to be used in the onshore RMB or CNY market.
The main official channel, which is just getting off the ground is the reverse QFII program or rQFII, but since the market was setup, there have been certain exceptions that have allowed offshore companies to bring money back onshore especially if the offshore company is a subsidiary of an onshore entity. Bank of China is one of the companies who was able to take advantage of this.
The offshore market still holds some appeal for Chinese corporates who are looking for loans or to raise money, but struggle to do so in the onshore market due to tighter credit conditions. The clearer rules about bringing CNH back onshore however make raising RMB in HK even more attractive.
Yet, we expect that offshore RMB deposits will continue to slow or decline as more companies take advantage of the expanding channels to bring money back onshore and the RMB as a whole becomes less attractive due to the expected slower future appreciation of the currency.