Luxembourg and Australia are likely to be the next jurisdictions to join the renminbi qualified foreign institutional investor (RQFII) scheme, Standard Chartered Plc (02888.HK) said Friday.
Luxembourg is a strong candidate because of its large amount of RQFII UCIT funds while Australia is a place where a renminbi clearing system was recently launched, the lender said in a report. UCIT stands for Undertakings for Collective Investments in Transferable Securities or investment funds that can be marketed across the European Union.
“The speed of the approval has also accelerated, doubling the speed of the QFII program this year, indicating a preference for the RQFII over the QFII program, thanks to the greater flexibility of cross-border repatriation and asset allocation,” the report said.
RQFII quotas worth more than 100 billion yuan (US$12.9 billion) have been approved as of the end of July, compared with US$8.2 billion under the QFII program over the same period, data from the lender showed.
Since the start of the program, 257.6 billion yuan of RQFII quotas have been approval as of July, of which Singapore got 252.4 billion yuan while Singapore and London won a combined 5.2 billion yuan.
This suggests that an increase in foreign investment in the domestic market is likely to have a greater impact on the offshore renminbi (CNH) liquidity than the US dollar liquidity, the bank said.
By July, the total onshore investment quota allocated for foreign investors exceeded 1.2 trillion yuan, including 258 billion yuan under RQFII program, US$58 billion in QFII and 600 billion yuan approved under central bank program, which far exceed the size of the dim sum bond market (yuan-denominated bonds issued outside China) at 733 billion yuan.
Dim sum bond issuance is expected to slow to about 200 billion yuan in the second half from 370 billion yuan in the first six months, but still management to meet the full-year forecast of 550 billion yuan to 580 billion yuan.
Monthly issuance may slow to 30 billion yuan to 35 billion from 62 billion on average in the first half, the bank forecast. The decline is mainly due to higher swap rates deterring asset-swap demand, improving onshore financing conditions and lower US Treasury yield and still-tight credit spread in the dollar.
At the same time, offshore yuan deposits in the coming months will slow or even see negative growth because of new initiatives that allow easier cross-border remittance, increase in onshore investment quota after more appointment of clearing banks and the expansion of the RQFII program.
In spite of a slowing growth in dim sum bonds and offshore yuan deposits, yuan-denominated cross-border loans are expected to gain speed in the second half as five regions in mainland China are allowed to borrow renminbi loans directly from offshore banks and bring them back for onshore usage at potentially lower cost than onshore ones.
The lender expects renminbi loans to reach 180 billion yuan to 200 billion yuan at the end of the year with the loan-to-deposit ratio rising to 20 percent.
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