May 28, 2015 / 6:56 AM / 4 years ago

CNH Tracker-China quickens pace for linking domestic and global markets

HONG KONG, May 28 (Reuters) - China this week pushed ahead efforts to link its domestic markets with global peers by launching a joint venture in Germany to provide a wide range of yuan-denominated products to European investors.

Deutsche Boerse agreed to set up a venture with the Shanghai Stock Exchange and China Financial Future Exchange to develop Chinese shares and ETFs for investors outside mainland China.

Shanghai Stock Exchange and Deutsche Boerse will each own 40 percent and China Financial Futures Exchange 20 percent of the venture, to be named “China Europe International Exchange” and incorporated in Germany.

It is a big step after China assigned Bank of China as the yuan clearing bank in Frankfurt and granted an 80 billion yuan ($12.90 billion) Renminbi Qualified Foreign Institutional Investor (RQFII) quota to Germany last year.

The latest move is also a bold attempt to expand the yuan’s footprint beyond Asia without participation of Hong Kong, a pioneer in developing offshore yuan market and a trial platform for capital account liberalisation reforms.

“The offshore trading platform set up by the three exchanges will further promote the two-way opening up of China’s capital market, enrich the product line of the offshore RMB market and accelerate the pace of Renminbi internationalisation,” said Gui Minjie, Shanghai Stock Exchange chairman.

European investors still have few channels to buy yuan-denominated products. Last year, Chinese asset management firm E Fund Management (Hong Kong) tied up with London-based ETF Securities to list an exchange traded fund (ETF) on the London Stock Exchange, Deutsche Boerse and NYSE Euronext Amsterdam.

Now, China has entered an era of mutual market access, rolling out pilot schemes such as the Shanghai-Hong Kong stock connector as it shows determination to have its currency included in the International Monetary Fund’s SDR.

Last week, a long-awaited scheme to allow funds domiciled in Hong Kong and China to be sold in each others’ market was announced and would be launched on July 1.

Meanwhile, Charles Li, chief executive of the Hong Kong Exchanges and Clearing, said the bourse was in preliminary discussions with mainland China to set up a commodity link similar to stock connect.

Beijing’s efforts are paying off. FTSE Russell, one of the world’s largest index providers, announced this week it will launch two transitional indexes that include China A-shares, and would add them into its global emerging markets benchmark within three years.

China’s stock market has been robust, and global investors hope to benefit from Beijing’s reforms, which is why FTSE rushed to include A-shares in its transitional index ahead of MSCI , said Ricky Choi, a senior analyst at Bank of China Hong Kong.

MSCI will decide on June 9 whether to include A-shares in its key emerging market benchmark indexes.


* China’s central bank said that it had appointed China Construction Bank as the yuan clearing bank in Chile. China also agreed to grant Chile a 50 billion yuan Renminbi Qualified Foreign Institutional Investor (RQFII) quota.

* The Chinese yuan has become the most used currency in Asia-Pacific for cross-border payments made with China and Hong Kong, global transaction services organisation SWIFT said on Wednesday. In 2012, the yuan placed fifth.

* Societe Generale completed sale of a 1.2 billion yuan ($193.43 million) 10-year dim sum bond at 5.2 percent on Wednesday. The order book amounted to over 2 billion yuan from 46 accounts, among which 70 percent of the bond was allocated to insurance companies, according to a term sheet seen by Reuters.

* China’s yuan is no longer undervalued after its recent gains, but the government should quicken reforms to get to having “a floating exchange rate”, the International Monetary Fund said on Tuesday.


Yuan payments in Asia Pacific:

RECENT STORIES: Foreign investors moving into Chinese bonds on improved liquidity, stock rally jitters Primary market of dim sum bonds gets a lift from China ministry issue

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$1 = 6.2038 Chinese yuan Editing by Richard Borsuk

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