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Tuesday, January 13, 2015, 09:17

Offshore yuan liquidity pool tipped to rise

By Oswald Chan in Hong Kong
Offshore yuan liquidity pool tipped to rise
Finance analysts are expecting a mild depreciation of the redback this year. (Cho Seong-Joon / Bloomberg)

The offshore yuan financing market in 2015 is poised for further growth, with total offshore yuan liquidity tipped to reach 3 trillion yuan ($482.9 billion) and bond issuance in offshore markets is expected to increase to 300 billion yuan, according to Bank of China (Hong Kong) (BOCHK).

BOCHK’s offshore renminbi express report released on Monday said the renminbi could become the fifth most traded currency in the global foreign exchange market. There is little doubt that the Chinese currency will maintain its position as the second most used currency in international trade, the report said.

The renminbi liquidity pool in Hong Kong is expected to reach 1.4 trillion yuan in 2015.  As at November 2014, outstanding renminbi deposits in Hong Kong totaled 974.1 billion, up 13.2 percent from Dec 31, 2013, BOCHK said.

Offshore renminbi bond issuance is also expected to flourish. BOCHK estimated renminbi bond issuance in offshore markets will increase to 300 billion yuan in 2015, while outstanding loan in the Chinese currency is expected to increase 30 percent by year end.

“Offshore renminbi market development in Hong Kong maintained its momentum in 2014. Hong Kong has continued to be the leader in renminbi businesses and has retained its important role in the renminbi global clearing system,” BOCHK senior economist Ying Jian said in the report.

Ying said the volatility in the renminbi exchange rate in recent months indicates that renminbi trading in the foreign exchange market has become more mature. This, he said, would make it feasible for bankers and traders to introduce more innovative renminbi-denominated financial products.

Standard Chartered Bank estimated offshore renminbi would appreciate no more than 1.7 percent against the US dollar in 2015 because the central government is seen to be reluctant to allow the currency to continue strengthening amid a subdued trade performance.

The projected appreciation of onshore renminbi against the US dollar is expected to stay below 1.4 percent, Standard Chartered said.

Those projections could mean that the exchange rate gap between onshore and offshore renminbi, which has been a key incentive for foreign investors to do arbitrage trades in renminbi, will disappear by the end of this year.

“We project a mild strengthening of the (renminbi) to 6.1 yuan for one US dollar by yearend,” said Louis Kujis, chief China economist at Royal Bank of Scotland. “We think the renminbi will continue to appreciate against other major developed market currencies in the coming years because of the mainland’s structural surplus,” he said.


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