Business needs and usage of RMB products retreated
In 3Q 2014, some 44% of companies said they had RMB customer orders/invoices and trade settlement in the last 12 months, versus 45% in the previous quarter. The percentage of companies that said they would use RMB for these purposes in the next 12 months plummeted to 55% from last quarter’s 69%.
The percentage of companies using RMB products fell to 28% in 3Q 2014, from 34% in the previous quarter. In 3Q 2014, only 20% of companies said they are currently using or will consider using RMB payment and receivables services in the next 12 months, versus 32% in the previous quarter. The percentage of companies that said they are currently using or will consider using RMB trade services in the next 12 months fell by half to 4% in 3Q 2014, from 8% in 2Q 2014.
Chris Leung, Executive Director and Senior Economist, Group Research, DBS Bank (Hong Kong) Limited, said: “Business needs for RMB is a key indicator of actual RMB acceptance and usage at the corporate level. As Chinese economic growth continues to slow due to structural reforms, we anticipate the growth of business needs for RMB by local corporations to slow in tandem. On the other hand, the usage of RMB products is expected to rebound as corporations take on various hedging strategies to mitigate the increase in exchange rate volatility.”
Companies’ volume of mainland business being the key factor affecting their RMB usage
Some 31% of companies that had used RMB products in the third quarter said they would increase their RMB usage when their volume of mainland businesses increases. Some 15% said they would increase their RMB product usage if there are supporting policies, while only 9% thought exchange rates would impact their usage level.
Chris Leung said: “The initial depreciation scare following a widening of the RMB trading band is apparently over. Many more companies (34% in 3Q 2014 vs 20% in 2Q 2014) anticipate further RMB appreciation in the next 12 months. That said, 38% of companies prefer the RMB to depreciate if they had a choice.”
Some 80% of the business decision makers surveyed said they did not have a good understanding of the Shanghai-Hong Kong Stock Connect pilot programme. Nathan Chow, Vice President and Economist, Group Research, DBS Bank (Hong Kong) Limited, said: “Shanghai-Hong Kong Stock Connect will provide an additional avenue for RMB investments. As RMB-denominated equities become more accessible, the demand for RMB-denominated structured products such as RMB equity-linked notes (ELN) and equity-linked deposits (ELD) is expected to surge. We believe investors will become increasingly familiarised with details of the Stock Connect after its launch.”
Large corporations remain resilient with increased demand for dim sum bonds
Ginger Cheng, Managing Director and Large Hong Kong & China Corporates Head, DBS Bank, Hong Kong Branch, said: “The large amount of dim sum bond refinancings this year and the lack of offshore RMB investment options have continued to drive the huge demand for RMB bonds. Year-to-date gross issuance of offshore RMB bonds reached RMB 368.3 billion, 32% higher than the full-year figure of RMB 280 billion in 2013.”
“There is an improvement of investor sentiment as a result of higher investment returns from RMB bonds. As offshore bond issuance is more flexible and cost effective compared with onshore, the momentum of dim sum bond issuance is likely to continue for the rest of 2014,” Ginger Cheng added.
DBS RMB Index for VVinning Enterprises (DRIVE) offers a strategic tool for policy-makers, businesses and investors to track the actual usage and acceptance of RMB among Hong Kong companies as well as their sentiment towards future RMB adoption. DBS releases the findings of DRIVE on a quarterly basis. Fieldwork for the 3Q 2014 report was conducted through telephone interviews with the business owners and decision makers of over 200 companies in Hong Kong.
Photo Captions
Photo 1: Ginger Cheng (on the left), Managing Director and Large Hong Kong & China Corporates Head, DBS Bank, Hong Kong Branch, said offshore RMB issuance is likely to remain buoyant for the rest of 2014.
Photo 2: Chris Leung, Executive Director and Senior Economist, Group Research, DBS Bank (Hong Kong) Limited, said companies’ volume of mainland business is the key factor affecting their RMB usage.
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