March 16, 2011Renminbi market has huge growth prospects: analysts
SINGAPORE : The offshore renminbi market in Hong Kong is expected to triple to 1.2 trillion yuan by the end of 2011 as investors bet on the Chinese currency to appreciate.
Strong investor demand for yuan assets will also mean that companies will rush to raise renminbi-denominated debt in the territory.
Currently, there are 74 billion yuan of outstanding "dim sum" bonds in Hong Kong, and this is expected to grow to 180 billion yuan this year.
After the National People's Congress meeting in Beijing on Monday, Chinese Premier Wen Jiabao reiterated that his country remains committed to gradual appreciation of its currency.
Analysts said the yuan could appreciate a further five per cent this year.
The anticipated appreciation in the Chinese currency has led to an exponential increase in renminbi deposits in Hong Kong. That means more companies will go to the territory to raise yuan-denominated debt and equity.
Donna Kwok, economist, Greater China, HSBC Global Research, said: "There's a lot of excitement about the first RMB IPO - that's expected to come within the next month.
"Talks about an RMB IPO were not in existence a year ago. The fact that they are now and the fact that the phrase "dim sum" bonds and the offshore bond market are so prolific, and understood by everyone, gives you just a taste for what's to come."
Analysts believe renminbi deposits in Hong Kong could swell to as much as 800 billion yuan this year, up from around 370 billion yuan currently.
However, outstanding dim-sum bonds currently total just 74 billion renminbi, just 20 per cent of deposits in the territory.
Chia Woon Khien, MD and head of Local Markets Strategy, Emerging Asia, RBS, said: "I think demand side is obviously the growth in CNY deposits, people wanting more assets.
"It's becoming really attractive, the kind of yields that you're looking at, it will be very tempting for companies that need funds to consider raising."
Another attraction for bond issuers in Hong Kong is the yield, which is lower than on the mainland. RBS said Chinese government bonds issued in Hong Kong are trading 200 basis points below their onshore yield.
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