CNH Tracker-After Nigeria, Brazil may be next to diversify into yuan
By Saikat Chatterjee
HONG KONG, Sept 15 (Reuters) - Brazil may follow in Nigeria's footsteps and diversify its foreign exchange reserves into yuan, which would bring more sovereign demand into the offshore renminbi market.
Nigeria's central bank governor Lamido Sanusi said Africa's second-largest economy will start holding yuan as part of its reserves from the next quarter, an allocation of as much as 10 percent, and will look at investment opportunities in the offshore yuan market.
The African nation's decision was not taken overnight. Over the years, trade ties between China and Nigeria have strengthened dramatically and annual trade between the two is set to cross $13 billion this year alone, a four-fold increase from 2006. It was relatively non-existent before 2000.
About 15 percent of all its imports are from China and the bulk of its oil exports, of which it is a major producer, goes to China. China has invested billions of dollars in developing refineries, ports and telephony infrastructure over the years.
As a result, Nigeria is among the top five export markets and trading partners of the Middle Kingdom in Africa and small wonder that its authorities want to reduce the reliance on dollars and euros as invoicing currencies for trade.
Next to follow may well be the economic powerhouses of Latin America.
- According to a study done by Gavekal strategists Will Freeman and Benjamin Lopez, trade between China and Latin America has grown faster than any other two major regions in the last decade.
- Latin America is China's biggest supplier of primary commodities, excluding fuel. Mining giant Vale -- the world's biggest producer of iron ore -- counts China as its single biggest customer.
- From 2000-2010, China's share of Latin America's trade jumped to 10 percent from 2 percent and the Middle Kingdom is the top trading partner for two of the most developed nations - Brazil and Chile.
- Last week, a Chinese group of five state-owned enterprises paid $1.95 billion for a 15 percent stake in Brazilian niobium producer, Companhia Brasileira de Metalurgia e Mineracao (CBMM), the world's top niobium producer.
- About $23 billion in foreign direct investment deals was announced in 2011, Gavekal said citing the U.N. Economic Commission for Latin America. Total foreign direct investment was a mere $7 billion between 1990-2009.
With China finding itself in a strong financial position compared to the West, Lamido Salusi, Nigeria's central bank governor told Reuters the move to diversify into yuan is," a very wise move at this point in time and forward looking."
Brazil, which sits on top of a $352 billion reserves pile would certainly think about that.
WEEK IN REVIEW:
* Norman Chan goes to the West. After Russia, London was the next destination for the top brass at the Hong Kong Monetary Authority to tout the territory's premier status as the offshore yuan hub and to support the development of yuan business in London. In 2010, about 30 percent of China's external trade was intermediated through Hong Kong, and nearly 60 percent of China's inward and outward direct investments were originated from or directed to Hong Kong, Chan who heads Hong Kong's central bank said.
* Malaysian government investment arm Khazanah Nasional will meet investors in Hong Kong and Singapore next week for an offshore renminbi sukuk in Hong Kong, marking the first Islamic financing instrument denominated in yuan. Bank of China International, CIMB Bank and Royal Bank of Scotland are the bankers to the deal.
* In other deals this week, Korea Development bank sold its debut 121 million yuan offshore renminbi bond at 1.6 percent while Citic Bank International closed a one-year 500 million certificate of deposit issue at 1.6 percent.
* Saxo Bank, an online trading and investment house, said clients can now trade the offshore yuan (CNH) on its platforms. Prices for ticket sizes up to USD 3 million will be available during regular FX trading hours from 8 a.m. Mondays Sydney time to 5 p.m. Fridays New York time. The margin requirement is 8 percent and the minimum trade size is $5,000 notional.
* HSBC Bank (Taiwan) obtained approval from Taiwan's regulators to offer yuan products and services to customers in Taiwan from next week. The license allows the bank to offer a range of yuan-related services and products including deposits, remittances, FX, trade, investments, loans and receivables finance amongst others. Taiwan along with Singapore are vying to be the next offshore yuan centers after Hong Kong.
CHART OF THE WEEK:
Chinese trade in yuan surges: link.reuters.com/xyh73s
Trade denominated in yuan has grown from strength to strength since the landmark reforms last July. As a percentage of total trade, yuan transactions are set to cross the 20 percent mark by the year end, though most of them are imports.
YTD dim sum bond issuance:
Book runner: Proceeds (RMB mln): # of issues:
1. HSBC 27,004.0 52
2. Standard 15,934.3 33
3. RBS 7,178.5 17
4. Bank of China 7,150.3 10
5. Deutsche Bank 7,027.6 12
YTD synthetic RMB bond issuance:
Book runner: Proceeds (RMB mln): # of issues:
1. Deutsche Bank 4,679.2 4
2. Citi 2,912.5 2
3. Bank of China 2,312.5 1
4. Bank of America 2,312.5 1
5. HSBC 1,748.5 3
* Thomson Reuters data as of September 15
RECENT STORIES: CNH Tracker-Yuan bonds resilient despite shrinking derivative returns New offshore yuan compilation PDF available
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<0#CNHBOND=> (Additional reporting by Nethelie Wong with IFR and Lucy Hornby; Editing by Kevin Plumberg and Ramya Venugopal)
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