18 Jun 2012
Survey Reveals Market Confidence about Renminbi Internationalisation
International law firm Simmons & Simmons has partnered with leading finance publication FinanceAsia to reveal what senior professionals around the globe think about the future direction of the renminbi.
The survey comes within the context of an increasing liberalisation of the renminbi in recent years and plans to internationalise the currency taking centre stage as part of Chinese financial markets reform.
Respondents to the survey included 276 investment bankers, commercial bankers, corporate executives and investors. The key findings are:
- the currency is likely to become fully convertible no later than 2025, with restricted capital account flows (and correspondingly slow reform) being the most significant obstacle blocking the path to free convertibility
- roughly 60% of respondents said between 10 to 25% of world trade will be settled in RMB in 2020 (up from 1% in 2011 over just eight years), a bullish prediction demonstrating market confidence that the path to full convertibility remains on schedule for 2025
- almost 50% of respondents predict that by the end of this decade, between 20-50% of the RMB offshore market will be outside Hong Kong
- market commentary in 2012 has been mixed, indicating currency arbitrage being a main driver for RMB bond issuances
- although the market has been cautious so far, half way through the year there appears to be increased confidence, with 87.7% of respondents believing the size of the market will be between $25bn - 50bn by end 2012, and by 2020, 75% predict over $50bn
- investors are keen be exposed to the RMB's potential increase in value, but 69% of respondents believe appreciation will remain slow and steady at 3% reflecting the belief there will be no drastic policy changes from Beijing in the short to medium term
- total issuance for the offshore renminbi market (including certificate of deposits and dim sum bonds) is predicted by readers to double from $26n to $50bn by 2020, but dim sum bond issuance will slow in pace, growing to just $20bn by the end of this year
- portfolio diversification and direct exposure to China were considered to be the top benefits to renminbi investors participating in the internationalisation process which is clearly not surprising given the Eurozone crisis.
Beijing-based Financial Markets partner from Simmons & Simmons, Yongmei Cai, commented: “Overall the survey demonstrates a clear desire by institutions for RMB capital raising, but continued expansion is dependent on further legal and regulatory clarity, particularly with respect to repatriation of proceeds.”
“Demand for RMB products is robust, demonstrating demand is not solely driven by currency arbitrage opportunities, but increasingly by development of RMB denominated financial products for retail markets that will deliver returns,” she continued.
Commenting on the poll, Jonathan Hammond, International Head of Financial Markets at Simmons & Simmons, said: ‘‘We are already experiencing the growth of internationalisation highlighted in the poll, having recently acted for BP Capital Markets on its issue of RMB700 million notes due 2014, the first London-listed renminbi issue by a multinational corporate, placing us at the forefront of the market. We see a host of opportunities with the internationalisation of the renminbi, particularly in an increasing array of offshore structured products, trade finance instruments and offshore lending denominated in RMB.’’
‘‘We look forward to discussing these interesting results with clients as they explore the renminbi as an alternative capital raising solution,” he added.
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