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Content provided by :  Hong Kong Trade Development Council

Banking on the Renminbi

Renminbi Trade, Bank of China  

Banks are flexing their foreign exchange trade muscle to capture business in Hong Kong (Photo: EPN)

Global financial institutions have their eyes on a rich pie. At the end of November 2010, the total amount of renminbi deposits in Hong Kong reached Rmb279.6 billion (US$42.15 billion), according to the Hong Kong Monetary Authority (HKMA). That represents an increase of 29 per cent from October, and up 246 per cent, year-on-year. HKMA Chief Executive Norman Chan said Hong Kong’s renminbi market would continue to expand through 2011, in terms of the depth and breadth of the market and product development. He expects Hong Kong's first-quarter quota for trade settlement to be about Rmb4 billion.

According to a recent Goldman Sachs report, the amount of renminbi deposits in Hong Kong will reach Rmb3.5 trillion in the next five years, accounting for 31.6 per cent of the total deposits in the Hong Kong banking system. 

  Gordon French, Head of Global Markets Asia Pacific, HSBC 
  Gordon French, Head
of Global Markets Asia
Pacific, HSBC

Banks building teams to prepare for this growth include the Hongkong and Shanghai Banking Corporation (HSBC), which has brought in Clyde Choi to be Head of Emerging Markets, Foreign Exchange (FX) Trading, HSBC Asia Pacific, based in Hong Kong. Mr Choi has more than 10 years’ experience in cross-asset class trading across FX and Rates. He was previously co-Head of Asian Macro Interest Rate and FX Trading in UBS Singapore. Gordon French, Head of Global Markets Asia Pacific, HSBC, said Mr Choi brings a wealth of experience to the bank’s foreign currency trading team, both regionally and globally."

Standard Chartered Bank, Deutsche Bank and Credit Suisse are also in the midst of beefing up their FX trading teams in Hong Kong to compete in the offshore renminbi market. "The sheer demand for renminbi products in Hong Kong is amazing," said Sundeep Bhandari, Standard Chartered's Managing Director for Global Markets in North-East Asia, in an interview with Reuters. "We are hiring a lot more on the capital markets business side."

Kelvin Lau  
Kelvin Lau, Regional Economist, Asia, at Standard Chartered  
"With China limiting the number of offshore access points to onshore markets, primarily via the clearing bank, the agent banks, or some form of a quota system, the role of developing, promoting and extending offshore renminbi business to the rest of the world falls heavily on Hong Kong shoulders," said Kelvin Lau, Regional Economist, Asia, at Standard Chartered. "All these will have positive, far-reaching consequences for Hong Kong – acting as a key financial centre for foreign corporate to buy, sell, invest, hedge their cross-border trades; as a place that pools together offshore money and manage them on foreign / mainland investors’ behalf; and as a liquidity hub to money to be raised and remitted back to the mainland. All these effectively opened a wide range of new opportunities for banks in Hong Kong – further cementing its international financial centre status," he noted.   

The Standard Chartered's Mr Lau said the rapid developments over the past year and years ahead will give Hong Kong a headstart from mainland cities.

Building Strength

Deutsche Bank has hired Ajay Kapur as a Managing Director and Head of Asian Equity Strategy, as it establishes an Asian equity strategy team in Hong Kong. Mr Kapur joined Deutsche Bank from Mirae Asset Securities, where he was Chief Global and Asia Strategist. The bank also appointed Priscilla Luk as a Director, Asian Equity Strategy, and Ritesh Samadhiya, Vice President, Asian Equity Strategy.

Ajay is one of the best-known and most respected names in the industry, having worked in equity research and strategy on both the buy and sell sides since 1989," said Guy Ashton, Deutsche Bank’s Head of Research for Europe, "Along with Priscilla and Ritesh, Ajay is ideally suited to build the region's leading equity strategy franchise."

Credit Suisse has brought in an executive from London as part of a significant expansion of its global foreign exchange sales platform in the Asia-Pacific. Yan Qin has joined FX Sales as a Director based in Hong Kong. He is responsible for building the client franchise among Chinese financial institutions and sovereign wealth funds. Mr Qin joins from JP Morgan in London, where he covered central banks and proprietary trading desks.

"Asia-Pacific represents one of the biggest growth opportunities in our roadmap to become a top-tier global FX provider," said Carsten Stoehr, Credit Suisse’s Head of Fixed Income Asia Pacific. "These hires complement our onshore Emerging Markets Rates and FX expansion in the region."

Game Changing

The banks have moved fast since mainland regulators opened the door in July last year, letting banks and individuals sell renminbi-denominated financial products in Hong Kong and giving companies greater access to renminbi funds. David Mann, Head of Research in the Americas for Standard Chartered Bank, described the establishment of offshore trading in the renminbi as "game changing. It's arrived much faster than anyone expected," he told The Wall Street Journal.

According to the Asian Development Bank (ADB), the renminbi could rapidly become an internationally used currency and serve as an alternative to the US dollar in central bank reserves. This could happen "much more quickly than many anticipate," the ADB said in a joint study with Columbia University's the Earth Institute. The Standard Chartered's Mr Lau says recent developments give Hong Kong a strong headstart. "Hopefully by the time China fully opens up its capital account, 10 to 15 years down the road, and when there is no longer a need to distinguish between onshore and offshore markets, Hong Kong will have such a deep and broad renminbi market that it will continue to hold on to its relative dominance over other cities, much like how London stays relevant for the Eurodollar market over the years despite the rapid rise of other financial centres."

Related Links
Asian Development Bank 
Credit Suisse 
Deutsche Bank 
Hongkong and Shanghai Banking Corporation 
Standard Chartered Bank

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