What Does the Mutual Market Era Mean for Fixed Income and Currency? James Fok, Head of Group Strategy 12 March 2015

Transcription

1 What Does the Mutual Market Era Mean for Fixed Income and Currency? James Fok, Head of Group Strategy 12 March 2015

2 Evolution of Hong Kong and Mainland Financial Markets 1 IPO Era Key growth driver in the past 20 years Primary offshore equity capital formation centre Markets remained segregated Opening Up Era Internationalisation of RMB Development of Free Trade Zones International investors are invited in Domestic investors are allowed out 3 Domestic Growth Era International funds flowed into the Mainland from IPO proceeds Domestic capital markets began to develop and rose fast in both scale and depth Equity derivatives and Commodities products turnover is already leading the world Launch of QFII and QDII and beyond Mutual Market Era SH-HK Stock Connect Mainland Market Mutual Market HK & International Market Internationalisation at China s doorstep Same time zone & home market rules RMB Exchanges in the Mainland and HK will become gateways on each side China s opening up over time presents both opportunities and challenges for Hong Kong as an IFC 2

3 What is the Potential of the Chinese Bond Market? Chinese Bond Market Breakdown Market Asset Allocation Interbank Exchange OTC Bond Outstanding / Bank Deposits: Size (% of market) US$ 5,091bn (90%) US$ 471bn (8%) US$ 113bn (2%) 3.1x 1.0x 0.3x ADT (% of market) US$ 20.2bn (92%) US$ 1.8bn (8%) <US$ 0.1bn (<0.1%) Regulator PBOC CSRC CBRC Bond Types Treasuries Interbank US$5,091bn (90%) Municipal Policy bank Corporate MTN CP Treasuries Municipal Corporate ABS CB Treasuries Corporate Governmentbacked institutional bonds Governmentbacked institutional bonds ABS China is already the third largest bond market in the world, but the potential growth remains enormous Source: Chinabond, Wind, SSE, SZSE, ECB, PBOC, FDIC, WFE 3

4 How is Exposure to Chinese FIC Markets Growing Offshore? RMB s Market share in Global Trade Settlement Global Rank: #17 #14 #8 #5 Global Rank: Average Daily FX Turnover in RMB #28 #19 #15 #9 (US$ bn) RMB use in global trade Offshore RMB Bonds Issuance Quotas for Entering Mainland Market (RMB bn) (RMB bn) CAGR: 44% Formosa 770 Approved quota RMB Investment Assets CD Bonds 436 Utilised quota (estimated apart from Stock Connect) RMB becoming globally accepted and more investors will need to manage their risk exposure to it Source: Standard Chartered Research, SAFE, BIS, SWIFT 4

5 Hong Kong is Poised to Benefit Catalysts for Hong Kong in FIC RMB Deposits in Hong Kong Increasing international exposure to onshore China bonds CAGR: 56% Greater two-way RMB FX volatility resulting from FX reforms RMB interest rate liberalisation Dim Sum Bonds Outstanding in Hong Kong Clearing mandates expected in OTC FIC derivatives CAGR: 66% Development of an offshore RMB loan market Potential expansion of Stock Connect schemes Hong Kong s potential as an FIC hub is driven by its unique connection to China 5

6 but is Not Alone Financial Metrics Hong Kong Singapore Taiwan UK France Luxembourg Australia S. Korea RMB deposits (RMBbn) RMB bonds in issue (RMBbn) < 10 < 10 < 10 < 10 RMB FX turnover (% of global total) 33.5% 16.2% % 0.8% 0.3% 0.6% 0.1% RMB payments (% of offshore total) 78.6% 4.0% 2.4% 5.6% 1.8% 0.8% 1.1% 0.4% Trade with China (% of China s total) 8.8% 1.8% 4.4% 1.6% 1.3% 0.1% 3.2% 6.6% Infrastructure RMB clearing bank PBOC swap line RQFII quota RMB derivatives Sources: PBOC, MoCom, BIS, HSBC, Standard Chartered Other offshore RMB centres pose competition for Hong Kong 6

7 How Can Hong Kong Establish a Unique FIC Role? Hong Kong s Value Proposition Offshore RMB Risk Management Hub of Choice Liquidity centre for wide range of RMB derivatives products Support central clearing of OTC products International risk management & legal regime Futurisation of Key China FIC Benchmarks RMB currency pairs Onshore interest rate and bond benchmarks Offshore-onshore convergence Platform for Eventual Mutual Market Access in FIC RMB-ready investors and intermediaries Links to global payment and collateral infrastructure Comfortable trading venue for Southbound investors Hong Kong needs to carry its early momentum to the next level of development 7

8 The Role of FIC in HKEx s Strategy Mutual Market Access Market Reform E Q UI T I E S FIC Products RMB Risk Management RMB OTC Clear C O ML M OD M I T E I E S Clearing & Commercialisation Asia Commodities Equities Confluence of onshore and offshore investors trading the same markets Accumulation of RMB assets outside China Fixed Income and Currency Policy-driven liberalisation of onshore FX and rates Use of RMB as funding and investment currency globally Commodities China s unmet commodity risk management needs Growing global relevance of China s commodity benchmarks FIC is central to creating a holistic value proposition for Hong Kong to ride on China s opening up 8

9 What s Next? Bonds Risk management tools for those accessing the onshore bond market FX Enhancement and extension of CNH futures Opportunities arising from CNH-CNY convergence Rates Derivatives on onshore and offshore benchmarks Synergies with OTC Clear product offering 9

10 Thank You HKEx Group Website: HKExnews Website: 10