HKEx: what to expect in the offshore renminbi equity market

Author: | Published: 2 Dec 2011
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The Hong Kong stock exchange (HKEx) is ready for an offshore Renminbi (Rmb) equity market to develop. But liquidity remains a concern for issuers.

HKEx’s Rmb Products Task Force head, Bryan Chan told delegates at this week’s IFLR Asia Capital Markets Forum that the exchange was working with the market to develop models that would facilitate renminbi equities in Hong Kong.

“Whether there will be enough renminbi liquidity to support a renminbi initial public offering (IPO) market and central market trading of the shares post-listing remains a concern in the market,” he said. “We are trying to raise assurance levels in the market on this.”

He stressed that no matter what happened to renminbi liquidity, there would always be workarounds available to issuers and investors in Hong Kong.

A side-by-side counter of Hong Kong dollars together with renminbi was one solution, he said. Any issuers already on HKex and shareholders could transfer shares from one to other, thereby helping arbitrage activities between the two counters and keeping the prices of the two counters in a reasonable level.

“This would help central markets by reassuring market participants’ concerns regarding the potential and plausible shortage of renminbi liquidity going forward,” he said.

New rules in October, relating to Rmb repatriation by China’s Ministry of Commerce (Mofcom) and the People’s Bank of China (PBOC) had helped develop the offshore Rmb market in Hong Kong, Chan said.

The rules stipulate only ‘legally obtained’ renminbi will benefit from clearer, better-documented and simpler repatriation, and the definition of ‘legally obtained’ Rmb includes the currency raised through bonds and equities.

“That means that companies raising the currency through a Rmb-denominated IPO in Hong Kong will benefit from these rules,” he said.

He was confident the market would pick up. The exchange had had a few enquiries regarding equity issuances, he said, with some even going as far as coming up with draft documents.

On the derivatives side, Chan said that the exchange had already completed the enhancements to its trading and clearing systems. It was planning market rehearsals with exchange participants in the first quarter of 2012, he said.

He predicted the first few products on the HKEx would be equity-related derivatives, such as single stock option, and equity index products. The exchange had also detected considerable interest of exchange-traded funds (ETFs), he said. “I expect we will see the first ETF products developed and traded in Rmb in Hong Kong in the very near future,” he said.

Structured Rmb products would be a logical sequence of development in the market. But Chan did not expect this to happen quickly.

HSBC’s managing director and Asia-Pacific transaction head, Pius Chong anticipated more demand for Rmb bonds, and a lengthening of the tenures on such bonds as more international investors and traditional fixed income investors participated in the market.

“I expect we will see more RMB bonds get listed not just on the HKEx but also across European exchanges too,” he said.