London offshore hub will boost renminbi trading

Despite reports of slowing growth in the Chinese economy, interest is building in the country’s currency, as Rob Langston reports

Asian markets are continuing to outshine their Western counterparts as the global economic slowdown shows little sign of relenting.

Despite indications of a slowing in GDP growth, China is still outpacing developed nations and achieved 7.8 per cent growth during the second quarter of 2012, outstripping anaemic growth in the developed market economies.

Other local economies, such as India and Indonesia, are also witnessing growth, albeit slower, thanks to ongoing pressures affecting the global economy.

The FTSE Indonesia Index is up by more than 25 per cent since 2010, underlying the strength of listed companies, although more recently it has seen exports fall. The Indian finance ministry, meanwhile, reported that it expected GDP growth of 6.5 per cent in 2011/2012 compared to 8.4 per cent during the previous year.

Some may question whether a slowdown in the Chinese economy should force them to look elsewhere to invest. While GDP figures are lower than the double digit growth witnessed in recent years, China still offers a compelling investment story.

As the Chinese open up their economy, the renminbi is likely to become a floating currency making it more liquid and tradable

The investment outlook will hinge more on the current change in Chinese leadership, which will inform the direction of the country’s economy.

As China continues to establish itself as an economic superpower, investors will undoubtedly wish to gain exposure to the Chinese currency, the renminbi.

Angus Campbell, head of market analysis at London Capital Group, says: “As the Chinese open up their economy further, the renminbi at some point is likely to become a floating currency, more like the others around the world, making it far more liquid and tradable.”

Yet, access to the currency remains restricted. The emergence of renminbi as a global, easily-traded currency is some way off yet. However, there are some options for investors who wish to get exposure to the currency.

Chinese bond issuance, corporate and governmental, has surged in recent years, growing from just CNY425.5 billion in 2010 to just under CNY1.1 billion at the end of August boosted by corporate issuance.

So-called “dim sum” bonds have emerged in recent years – corporate bonds issued by companies in local currency in Hong Kong – which have been encouraged by Chinese authorities.

Although issuance has also increased, dim sum bonds may not yet be on every investor’s radar. However, talks to establish London as an offshore hub for renminbi-denominated products earlier this year will, no doubt, boost the profile of the products.