Standard Chartered today announced that the Standard Chartered Renminbi Globalisation Index (Bloomberg: SCGRRGI <index>), or the RGI, fell in October to 2,395 from a revised 2,406 in September.
The post-August jump in FX turnover that fuelled the RGI’s Q3-2015 rise started to normalise in October; we expect FX turnover to become a bigger drag on headline index growth in the coming months. Meanwhile, we saw further setbacks in the CNH deposit and cross-border payment components, in line with our expectations.
Standard Chartered Bank commissioned Asset Benchmark Research to conduct the ‘Renminbi Review 2015’ survey between late-October and mid-November, and interviewed 173 treasurers and senior finance executives from Asia, Europe and the US. The survey shows that: Onshore and offshore corporates responded differently to increasing Renminbi FX risk. 61% of the respondents said they were managing their Renminbi FX risk more actively given the currency’s recent volatility. China-based respondents appeared to be more aggressive in doing so, with 80% responding ‘yes’, versus 52% of those based outside China. In contrast, offshore companies tended to scale back their Renminbi positions more actively; they found it expedient to simply convert their Renminbi into other currencies as soon as they received it. Only around 6% of all respondents saw the CNY appreciating against the USD, versus 44% expecting depreciation, in the next three months. A more positive outlook on Renminbi trade settlement: while 51% of respondents expected their Renminbi trade settlement to stay the same in the next six months, 41% anticipated an increase, versus only 8% seeing a decrease.
We expect the CNY-CNH basis to eventually converge, for three key reasons. First, we expect renewed cross-border flows to help close the gap. Second, China’s commitment, following the CNY’s SDR inclusion, to continue reforms is consistent with its intention to open the capital account. An open capital account is conducive to a smaller basis. Third, China is likely to ensure that a large basis does not persist, as it aims to make the CNH a good hedge for the CNY, to meet SDR requirements.
We think the CNY-KRW direct trading market has high growth potential. Based on Korea’s strong trade relationship with China, we think the market will expand further on real economic interaction. Korea’s National Assembly also ratified the China-Korea free trade agreement (FTA) on 30 November 2015 .The government aims to increase CNY settlement to 20% of all China-Korea trade by 2020; the FTA deal and more policy support should help, but the countries are still a long way from that goal.
Standard Chartered launched the RGI in November 2012. The Index covers seven markets in offshore RMB business: Hong Kong, London, Singapore, Taiwan, New York, Seoul and Paris. It measures business growth in four key areas: deposits (denoting store of wealth), Dim Sum bonds and Certificate of Deposits (as vehicles for capital raising), trade settlement and other international payments (unit of international commerce) and foreign exchange (unit of exchange). As the Renminbi further internationalises, there is capacity to include additional parameters and markets.
Standard Chartered Renminbi Globalisation Index
|Objective||The first industry benchmark that effectively tracks the progress of RMB business activity. Offers corporates and investors a quantifiable view of the latest trends, size and levels of offshore activity that are driving RMB adoption|
Dim Sum Bonds and Certificate of Deposits
Trade Settlement & Other International Payments
Foreign Exchange Turnover
|Base value and date||100 at 31 December 2010|
|Inception Date||14 November 2012|
|Methodology||Weight of each of the four parameters are inversely proportional to their 24-month normalized standard deviations|
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For further information, please contact:
Business Communications Manager
Standard Chartered China
(8621) 3851 8629