Asia Special Report

We discuss three stages of RMB internationalisation and how China’s economic size, trade network and increasing financial market depth should ultimately allow RMB to become a truly global currency. There will be major implications, including net capital outflows, a more flexible exchange rate regime and an interest rate-targeted monetary policy.

    FX strategy: Global diversification into RMB assets will benefit RMB over the long run, but given the many short-term challenges, RMB depreciation versus USD is likely through 2016. We forecast USD/CNY at 6.75 at end-2016.

    Rates strategy: An integral part of the process will be raising foreign investor access to the onshore bond market. There is significant potential for growth here, which should support a rally in Chinese bonds alongside expectations of further policy easing.

    Equity strategy: We identify three medium-term trends: 1) rising revenue opportunities across a range of asset classes; 2) greater foreign ownership of A-shares, driven by benchmark index changes and improving market mechanisms; while 3) China’s sovereign and municipal bond market will grow in importance.