Standard Chartered Renminbi Globalisation Index Down 0.24% m/m in May due to low Dim Sum issuances

Published 
  • RGI to pick up in H2; CNY band to widen to +/- 3% by year-end 

Taipei – Standard Chartered today announced that the Standard Chartered Renminbi Globalisation Index (Bloomberg: SCGRRGI ), or the RGI, fell 0.24% m/m to 2,145 in May from a revised 2,150 in April, the first time the index has contracted for a second consecutive month since its inception in December 2010.

Trade settlement drove RGI growth in May, adding 0.64ppt to growth after having detracted 0.34ppt in April. The share of Renminbi-denominated cross-border payments rose to 1.58% of global flows in May. 23.2% of China’s total goods trade was settled in Renminbi in May. We forecast that the Renminbi’s share will increase to 38% by 2017 and that 46% of China’s total trade will be denominated in Renminbi by 2020. In addition, China’s pre-eminence as a commodity importer is also likely to further the use of the Renminbi as a major trade currency and we expect more commodity suppliers to turn to Renminbi settlement. We forecast that the Renminbi will move to the third most used international currency by 2020 from its position as the eighth currently, surpassing the Japanese yen and the British pound.

Dim Sum bonds offset the increase from trade settlement in May, detracting 0.74ppt from the RGI. However, we expect Dim Sum bonds to be well supported in July, despite potentially higher market volatility amid the situation in Greece and a potential rebound in USD-CNH CCS. The market recovered in Q2 on a revival in primary issuance and a drop in average yields. Primary issuance was CNY 45bn in June – CNY 23.5bn in Dim Sum bonds, CNY 17bn in certificates of deposit (CDs), and CNY 4.4bn in Formosa bonds. We expect primary issuance of CNY 250-270bn in H2-2015 and maintain our full-year issuance forecast of CNY 480-500bn. For this reason we believe the RGI is close to bottoming. The recent wave of policy liberalisation steps will likely be reflected in May-June data. We think the recent lull is temporary and that the RGI will start rising in H2-2015.

The People’s Bank of China’s (PBoC’s) announced in early June that it will allow offshore Renminbi clearing banks and settlement banks to access China’s onshore repo market, using cash bonds purchased under the PBoC China interbank bond market (CIBM) programme as collaterals. It will allow proceeds to be repatriated for offshore usage. This will likely allow CNH liquidity condition to improve over time and to be more correlated with onshore interbank liquidity conditions going forward. In addition to the PBoC’s strong commitment to keep onshore liquidity accommodative, we expect the Chinese authorities to reform the exchange rate system further, to facilitate greater two-way volatility. We forecast that the band will widen to +/- 3% by end-2015 and to +/- 5% by end-2017.

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

Index Parameters

Deposits

Dim Sum Bonds and Certificate of Deposits

Trade Settlement & Other International Payments

Foreign Exchange Turnover

Markets

Hong Kong

London

Singapore

Taiwan

New York

Paris

Seoul

Investability

Non-tradable

Frequency

Monthly

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