16 August 2013 DBS RMB Index for VVinning Enterprises 星展人民幣動力指數 Disclaimer: The information contained in this document is intended only for use during the presentation and should not be disseminated or distributed to parties outside the presentation. DBS Bank accepts no liability whatsoever with respect to the use of this document or its contents.
Composite index of a basket of parameters 1. Company Business Performance DRIVE DBS RMB Index for VVinning Enterprises 54.9 55.1 55.2 2. RMB Customer order/ invoice 4. Access to RMB Finance 4Q12 1Q13 2Q13 3. RMB Trade Service & Payment Receivables (Remittance) 2
1. Business performance Business performance remains flat though less companies reported negative growth Business performance in past 12 months Business performance in NEXT 12 months (6%) 5% Improved/ Will improve by over 10% 3% (3%) (16%) 18% Improved/ Will improve by 5% - 10% 14% (15%) (41%) 49% No change (+/- 5%) 59% (50%) (16%) 12% Slowed down/ Will slow down by 5% - 10% 12% (19%) (18%) 13% Slowed down/ Will slow down by over 10% 9% (8%) (4%) 3% Don't know/ Not sure 2% (3%) Base: All respondents (n=213) (1Q13: n=212) Remarks: Figures in () denote 1Q13 data 3
2. RMB customer order/ invoices Usage increased amongst current users Past 12 months NEXT 12 months 2013Q1 (n=99) 2013Q2 (n=102) 2013Q1 (n=115) 2013Q2 (n=114) Usage increased in P12M/ Expected usage increase in N12M No change Usage decreased in P12M/ Expected usage decrease in N12M Base: Current/ users of RMB customer order/ invoices and trade settlement (excluded those who are unsure/not using)
3. RMB Trade Service & Payment Receivables Usage remains low Usage of RMB payments and receivables Using 10% (18%) Not using but will consider in next 12 months 5% (4%) Don t know/ Unsure 4% (10%) Usage of RMB trade services Not using but will consider in next 12 months Using 2% (2%) 3% (3%) Don t know/ Unsure 4% (9%) No need for this product 81% (68%) No need for this product 91% (86%) Base: All respondents (n=213) (1Q13: n=212) Remarks: Figures in () denote 1Q13 data Base: All respondents (n=213) (1Q13: n=212) Remarks: Figures in () denote 1Q13 data 5
3. RMB Trade Service & Payment Receivables Consideration to use declined to a lowest level since Q412 Consideration of using RMB for settlement in N12M 2012Q4 (n=163) Past 3 quarters 2013Q1 (n=163) 2013Q2 (n=162) Base: Companies using payment and receivable/ trade services (n=162)
3. RMB Trade Service & Payment Receivables Preference over RMB and other currencies remains unchanged Preferred currency for settlement USD 22% (22%) Don't know/ No preference 3% (2%) Consideration of using RMB for settlement in N12M Don't know/ Not sure 3% (4%) Yes 12% (19%) RMB 2% (2%) HKD 72% (73%) No 85% (77%) Base: Companies using payment and receivable/ trade services (n=162) (1Q13: n=163) Base: Companies using payment and receivable/ trade services (n=163) (4Q12: n=163) Remarks: Figures in () denote 1Q13 data 7
4. RMB Financing Likelihood to apply for RMB financing in next 12 months Reason of unlikely to apply (n=168) 2013Q1 (n=172) 2012Q4 (n=168) Very Likely Quite Likely ( <1%, 1%) ( <1%, 1%) Company does not need RMB / mainly use other currencies 62% 68% Neither Likely Nor Unlikely (11%, 14%) Loan is not needed 34% 23% Quite Unlikely (34%, 26%) Very Unlikely (51%, 54%) No business/ trading in Mainland China 15% 8% Don't know/ not sure (3%, 3%) Concern for interest rate 3% 4% Base: All respondents (n=213) (1Q13: n=212) Remarks: Figures in () denote 1Q13, 4Q12 data Base: Companies quite unlikely/ very unlikely to apply for RMB financing in N12M
Disclaimer: The information contained in this document is intended only for use during the presentation and should not be disseminated or distributed to parties outside the presentation. DBS Bank accepts no liability whatsoever with respect to the use of this document or its contents. Industry Insights
1. RMB product usage dropped almost by half The gloomy business and economic outlook and lower RMB appreciation expectations may have affected companies appetite to use RMB products in 2Q Only 14% of companies used any RMB products in 2Q vs. 26% in 1Q However, Development of RMB for use in business transactions and in investment products may not be parallel Regulatory support gives offshore corporations greater ability to manage RMB exposure using different investment tools Overall RMB products usage (n=213) Have not used any RMB products 86% (74%) Used ANY RMB products 14% (26%) Base: All respondents (n=213) (1Q13: n=212) Remarks: Figures in () denote 1Q13 data 10
1. RMB appreciation expectations slowed down Expectation on RMB vs. USD 2012Q4 (n=211) 2013Q2 (n=213) 15% 6% 39% 42% 24% 26% 4% 1% 4% 17% 20% Base: All respondents
2. Use of RMB SIDs jumped 5-fold Companies product usage has expanded to more complex products like structured investment deposits (SIDs) 22% of companies used RMB SIDs 2Q versus just 4% in 1Q 12% of companies used RMB DFs 2Q versus just 3% in 1Q More transparent and high liquidity in forward markets enable more yield enhancement products (low risk) Lower implied volatility enables digital CNH products CNH HIBOR fixing provides a reliable benchmark to price loan facilities and facilitates the development of the offshore RMB interest rate swap market There is still much room to increase the use of hedging products. Only 1% of companies surveyed are currently using RMB hedging products 12
2. Uptake of RMB SIDs gaining momentum Overall RMB products usage (n=213) RMB products used in the past 12 months (n=54) % Used ANY RMB products 14% (26%) FX Spot RMB Saving and cheque account RMB Denominated Structured Investment Deposit 23 22 (28%) (4%) 32 (40%) Have not used any RMB products 86% (74%) Other Currency Linked to RMB Structured Investment Deposit Deliverable Forward RMB Letter of Credit 6 ( - ) 12 14 (3%) (3%) RMB Term Loan 4 ( * ) Base: All respondents (n=213) (1Q13: n=212). Companies using any RMB products (n=54) (1Q13: n=64) Only mentions 3% or above are shown. Remarks: Figures in () denote 1Q13 data * Denotes percentages less than 0.5% 13
2. More varieties of RMB trade services considered RMB trade services that companies are interested to use in N12M RMB Exchange 43% (69%) 35% (16%) 22% (13%) Import/Export Trade Finance and Bills for Collection 15% (6%) 32% (8%) 52% (83%) RMB Import Trade Settlement Account 12% (11%) 38% (12%) 50% (74%) L/C Issuance and Advising 9% (2%) 35% (14%) 54% (75%) 2% (9%) RMB Export Trade Settlement Account 8% (10%) 37% (12%) 55% (78%) Likely Neither likely nor unlikely Unlikely Don't know Base: Companies use or consider using RMB trade settlement service or payment/receivables in next 12 months (n=50) (1Q13: n=60) Remarks: Figures in () denote 1Q13 data *Note: Very small sample base of <30, caution should be taken in interpretation 14
2. Offshore RMB Structured Investment Products Foreign Exchange products Increase in volume of spot and forward transactions, more trading and yield enhancement driven activities Period of low implied volatilities and USD forward premium led to increase demand of digital Offshore RMB Structured Notes and Deposits. Notes/Deposits were either CNH or high yield currencies denominated Low implied volatilities make Currency-linked Instruments yields not attractive, however volume may go up in next few years due to daily band widening in Onshore CNY Currently hedging activities still dominate CNH FX trading USDCNH 1yr implied volatility USDCNH 1month implied volatility 15
2. Offshore RMB Structured Investment Products Interest rate linked products The relatively flat yield curve (swap curve) leads to low potential return from Interest Rate linked Structured Notes (Structured Investment Deposits) Launch of the CNH HIBOR fixing on June 24 by TMA HK would lead to more interest rate linked products innovation in the future Spread between 3 year CNH swap and 3-month CNH Hibor 16
2. Outlook on Offshore RMB investment products China may widen the daily trading band of RMB in the near future, hence leading to higher implied volatilities in RMB FX, making yield enhancement products such as dual currency instruments more popular. Offshore RMB bonds yield differential to onshore bonds will continue to narrow, making them more appealing to offshore investors. Broadening of issuers universe to include more non-chinese names and lengthening of tenor will help drive up appetite. The market in RQFII fund will expand with faster development in the Chinese bond market. There will be more interest rate structured products when yield curve starts to steepen, the launch of CNY HIBOR in Hong Kong has improved the confidence on Interest Rate Investment Products. Equity-linked products in CNH is still in an infant stage because investors in equities are more likely to look for capital gain. 17
3. Different industries have different needs for RMB 62% of retail companies included RMB in their top three currency preferences for financing; only 41% of trade companies thought the same Retail and trade companies are more negatively affected by RMB appreciation than companies engaged in business services and community, social & personal services Policymakers may have to account for these differences when formulating policies to propel RMB usage in Hong Kong 18
3. Different industries have different needs for RMB Impact of RMB appreciation on cost of business operation Community, social and personal services (n=27*) Business services (n=22*) Retail (n=34) Trade (n=65) Companies which use trade services (n=52) Positive impact Positive impact Negative impact -7% -23% -31% -29% -34% -14% -22% -27% Negative impact Base: All respondents in respective industries *Note: Very small sample base of <30, caution should be taken in interpretation. Strictly for reference only.
About DBS RMB Index for VVinning Enterprises Disclaimer: The information contained in this document is intended only for use during the presentation and should not be disseminated or distributed to parties outside the presentation. DBS Bank accepts no liability whatsoever with respect to the use of this document or its contents.
Research methodology Target respondents Business decision makers (e.g. Account or Finance director/ manager, business owners, etc) who are involved in the selection of financial service providers for the company Sample size Data collection method 2Q13: n = 213 companies (n=203 SME + n=10 Corporate) 1Q13: n = 212 companies (n=202 SME + n=10 Corporate) 4Q12: n = 211 companies (n=200 SME + n=11 Corporate) SME refers to companies with annual turnover between HK$200,000 and HK$1 billion Corporate refers to companies with annual turnover of HK$1 billion or above Telephone interview Weighting Final sample achieved is weighted taking reference of the Census and Statistics Department s information (in terms of industry type and sales revenue distribution) in order to ensure that the findings are representative of the business establishment landscape in Hong Kong. Note: Figures in this report may not be proportionally calculated due to weightings applied. 21
Index calculation The RMB Index Weighting is assigned for each option and transform into a scale of 0-100 For Example: Improve by over 10% Improve by 5-10% No change Slow down by 5-10% Slow down by over 10% 100 75 50 25 0 Currently using RMB trade settlement service Currently not using RMB trade settlement service but will consider N12M No need for RMB trade settlement service 100 50 0 22
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