Standard Chartered today announced that the Standard Chartered Renminbi Globalisation Index (Bloomberg: SCGRRGI <index>), or the RGI, rebounded by 3.1% m/m in January, to 2,228 from a revised 2,162 in December. The rise was predominantly driven by a surge in CNH FX turnover following the bout of depreciation at the beginning of the year. Similar to last year’s experience, such a boost to the RGI will likely be transitory, masking the still-weak underlying trend. Worries over further clampdowns on cross-border outflows from China might have also prompted companies to keep more Renminbi offshore while they can, breaking the fall in offshore deposits since mid-2015.
Higher CNH FX turnover in January, on the back of the increased spot volatility in the beginning of the year, made up for the drop in CNH deposits and dim sum bonds in the month. CNH FX turnover added 3.2ppt to index growth in January after having subtracted from the index for the past three months. By our measures, the average daily CNH FX turnover surged over 60% m/m in January, higher than the August peak by 3%. The bumpy transition of the FX policy in January to stabilising the CNY against a basket of currencies led to increased CNY volatility and revived depreciation expectations. We believe that a sizeable drag from this later in H1 2016 is inevitable.
Continued stabilisation in CNY fixing and spot rates, a better macro outlook and more policy reassurance are prerequisites for a more permanent turnaround in the RGI, possibly in H2-2016.
On 24 February, the PBoC announced to open up China’s onshore interbank bond market – which covers 91% of all outstanding bonds – to nearly all foreign financial institutions. This is one of the most significant steps China has ever taken to open up its capital account to foreign investors and paves the way for potential index inclusion by global fixed income indices It is likely to materially increase foreign inflows in the coming quarters, in our view. We expect China’s onshore bond market to reach CNY 100-105tn by end-2020, more than double from end-2015 level of CNY 48tn and foreign investors to own a total CNY 4-7tn of China onshore bonds by 2020, up from CNY 763bn as of November 2015.
For 2016, we believe the overall size of RMB deposit in Taiwan will likely continue rising in 2016, albeit at a slower pace, to CNY 330-350bn, as local Taiwan residents continue to exhibit preference for CNY amongst other major foreign currency. Local Taiwan authorities’ continuing efforts to liberalise existing rules and regulations also help create favourable market condition for both local and foreign market participants to better manage as well as access the rapidly growing Renminbi liquidity pool.
Taiwan regulators have recently further expanded the scope of RMB-denominated business conducted, including to allow participating banks to access clearing funds used for services, goods and direct investment as well as buying and selling of CNY forwards and swaps. Taiwan Central Bank (CBC) has also introduced Negotiable Certificate of Deposit (NCD) denominated in CNY, while the first CNY-denominated Exchange Trade Fund (ETF) is likely to be listed in June 2016. The growing list of available offerings of RMB-denominated product also complement on-going efforts by Taiwan seeking to expand CNY recycling channels and will also support Taiwan’s push to increase cross-border usage of RMB as well as its long standing goal to strengthen Taiwan’s position as an eminent offshore RMB centre in the region.
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
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
Base value and date
100 at 31 December 2010
14 November 2012
Weight of each of the four parameters are inversely proportional to their 24-month normalized standard deviations
View the latest RGI statistics in one place by visiting our interactive infographic, Global Research’s RGI tracker on BeyondBorders
For further information, please contact:
Vice President, Corporate Affairs, Taiwan
(02) 6603 9875