BNPP Investor Brochure_VER2_ASIA

Transcription

All About RMB
Bank and Investor Handbook
V2.0
The bank for a changing world
CONTENTS
1 Why invest in China?
The next step for RMB internationalisation by Chi Lo
Current account payments in RMB are fully liberalised
The RMB: en route to becoming a reserve currency
03
03-04
05
06-07
2 The fast growing onshore markets
08
The 2nd largest equity market in the world
08-12
The 3rd largest bond market in the world
13-17
RMB interest rate derivative market
18
RMB FX market
19
China’s commodity market
20
3 Summary of markets and access
21
4 How can I access China’s capital markets?
22
Which quota for which market?
22
Which quota for which investor?
23
How can I obtain a quota?
24
BNP Paribas quota advisory services
25
5 BNP Paribas solutions - Direct market access
Shanghai-Hong Kong Stock Connect explained
Equity derivative solutions
Trading, bond custodian and clearing with BNP Paribas (China) Ltd.
6 BNP Paribas solutions - Funds and alternative investments
Active management solutions
Passive management solutions
7 Appendix
Glossary of useful terms
Contact us
Please refer to "Glossary of useful terms" for all the acronyms used in this brochure.
26
26-30
31
32-33
34
35-37
38
39
39-40
41
Why invest in China?
The next step for
RMB internationalisation
By Chi Lo, BNP Paribas Investment Partners senior economist
Beijing’s first step to internationalise the RMB (RMB) by promoting its role in
foreign trade settlement has been successful so far; the RMB has reached the
ranking of seventh most-widely used world payments currency by SWIFT.
The next step to deepen the internationalisation process is to create non-trade
demand for RMB. This will involve enlarging the offshore RMB market and creating
RMB-denominated assets and hedging tools supported by onshore financial
liberalisation.
A successful first step
RMB-denominated trade settlement has soared since
to deepening the internationalisation process because, when
Beijing started allowing Chinese companies to settle foreign
all current account transactions are settled in RMB, a surplus
trade in the currency in mid-2009. These RMB funds have
means more RMB flows back to China than flows out (as
flowed offshore and have been trapped mostly in Hong
China exports more than it imports). With a closed capital
Kong, where 90% of RMB trade settlement takes place,
account, where non-trade capital flows are blocked, a
leading to a significant build-up in RMB deposits.
current account surplus will only shrink the offshore RMB
pool, frustrating the internationalisation effort. So what else
However, China’s current account surplus is not conducive
can China do?
The next step for RMB internationalisation
RMB and demand for money theory
The demand for money theory sheds some light on the next
These other two RMB demand motives are closely related to
step for RMB internationalisation. There are three motives
the availability of a deep and mature Chinese capital market,
for demand for money: transactional, precautionary and
with Chinese financial products and hedging tools made
speculative. Promoting the RMB as a foreign trade settle-
available to foreign players. Such development remains slow
ment currency is the first step in that it captures the
due to the deep-rooted structural and institutional reforms
transactional demand motive. The next step involves
needed, and most of the offshore non-trade demand for RMB
deepening internationalisation by capturing the precautio-
at this stage remains, arguably, speculative (this is not to be
nary demand (from central banks as one of their reserve
confused with the speculative demand for RMB). This can be
currencies and from the foreign private sector as one form
seen in the behaviour of RMB deposits in the Hong Kong
of foreign currency savings) and the speculative demand
banking system.
for RMB (as an investment currency in an international
portfolio).
All About RMB｜03
Non-trade RMB demand remains speculative
Despite the big jump in RMB deposits in the Hong Kong
Chart 1: HK - Foreign currency deposits (% of total)
banking system, its share is still around 12% of total. It
is noteworthy that the sharp rise between 2009 and
2011 came mainly at the expense of a fall in the share
of other foreign currency deposits (Chart 1), as investors speculated on RMB appreciation.
RMB deposits gain at the
expense of other foreign
currency deposits,
reflecting speculative
reshuffling within foreign
ccy holding but not real
demand for RMB
54.0%
52.0%
50.0%
16.0%
14.0%
12.0%
10.0%
48.0%
8.0%
When the market started to bet on RMB depreciation in
46.0%
the second half of 2011, RMB deposits in Hong Kong
44.0%
also started to drop. Granted, as Beijing gradually
42.0%
liberalises capital inflows, more avenues for offshore
40.0%
RMB to flow back to China have also prompted the
decline. But speculation on RMB depreciation was the
major reason for investors abandoning the RMB
between 2011 and 2012. The fact that the rise in the
share of RMB deposits in Hong Kong came at the
expense of other foreign currency deposits in the
“go-go” months between 2009 and 2011 reflected
investors’ portfolio reallocation within their foreign
currency holding. There was no long-term demand for
RMB by switching out of the Hong Kong dollar. As soon
as market expectations turned towards RMB deprecia-
Other foreign
ccy deposits
(LHS)
RMB deposits* (RHS)
4
200
02/
RMB deposits fell on
depreciation
expectation, while
other foreign currency
deposits held steady
6.0%
4.0%
2.0%
0.0%
1
2
5
8
5
0
6
7
3
4
9
200
201 8/201
200
201 6/201 8/201 4/201 3/201
200
200
0
0
01/
09/
12/
07/
11/
10/
0
0
0
* Adjusted for HKD/RMB exchange rate changes
Sources: CEIC, BNP Paribas Investment Partners
tion in late 2011, deposits flowed out of RMB and back into
other foreign currencies.
Such erratic behaviour in RMB-deposit growth is not a
sustainable way to internationalise the currency. To deepen
internationalisation, Beijing must create an incentive for
foreigners to use and hold RMB other than for trading good
and services.
The next step: full capital account convertibility
Arguably, most of the increase in offshore RMB financial
evidence in other countries where exporters tend to
transactions in Hong Kong, the largest offshore RMB
settle in their home currency more often than importers
centre, is still driven by international trade activity. Free
do. The excess CNH import settlement is the main driver
convertibility of offshore RMB, or CNH, has caused its
of offshore RMB-supply growth. It also helps offset the
exchange rate to deviate from the onshore rate, or CNY.
negative effect of China’s current account surplus on the
When foreigners are bullish on the RMB, they push up CNH
offshore RMB pool.
so that it trades at a premium to CNY. This gives Chinese
importers an incentive to pay for their imports offshore
In other words, CNH supply responds endogenously
with RMB as they can convert CNY into CNH at par, yet
through the import settlement channel which, in turn, is
CNH buys more foreign exchange. CNH supply/deposits
a function of the CNH-CNY premium. The larger the
increases in the process.
CNH-CNY premium, the bigger the incentive for Chinese
hence, the size of offshore RMB deposits.
RMB, they sell CNH and depress its exchange rate so that
CNH trades at a discount to CNY. This gives Chinese expor-
Since China has yet to deepen the second step for RMB
ters an incentive to accept payments in RMB offshore since
internationalisation, there remains much potential for
they get more CNH for any given amount of foreign
financial activity to develop in the offshore market.
exchange and can convert CNH into CNY at par. CNH
However, before China opens its capital account, offshore
supply/deposits falls as a result. But this phenomenon is
centres, notably Hong Kong, which have a natural
not common because CNH seldom trades at a discount to
advantage in accumulating large amounts of offshore
CNY. The CNH premium has averaged 0.1% since 2010.
RMB through trade will remain the main beneficiaries of
CNH activities. Other centres will have to compete for
Thus, there has always been an excess of CNH settlement
CNH from these and other centres since offshore RMB is
in imports over exports in response to the prevalent CNH
fungible. The game changer will be full capital account
premium. This phenomenon is in stark contrast to
convertibility, which will take some years to unfold.
All About RMB｜04
The next step for RMB internationalisation
importers to settle in RMB, boosting CNH supply and,
On the other hand, when foreigners are bearish on the
China National Advanced Payment System (CNAPS), which includes HVPS and BEPS, was set up by PBoC to provide both
RMB and foreign currency payment services for transactions between onshore banks.
High Value Payment System (HVPS) is a Real Time Gross Settlement (RTGS) system that runs 8.5 hours per day, 5 days a
week and plays the most important role in RMB clearing.
Bulk Electronic Payment System (BEPS) is a net and batch clearing system for payments less or equal to CNY 50,000; it
works 24/7.
Flowchart - onshore CNAPS clearing
CNAPS
HVPS
PBoC
Remitter
BEPS
Location 1
PBoC
Beneficiary
Location 2
CIPS
What’s next?
⊕ CIPS (Cross-border Interbank Payment System) will be released in 2015 by PBoC for
cross-border and international RMB payments. It aims to facilitate worldwide RMB clearing for
both onshore and offshore banks.
How to effect RMB cross-border payments?
Offshore company
(parent company, importer, etc.)
1. Products and services provided
and invoiced in RMB
Onshore company
(subsidiary, exporter, etc.)
information to collect:
-China CNAPS clearing code of the
beneficiary bank
-Where BNP Paribas (China) Ltd.
2. RMB payment instruction (CNY)
Complete information:
-Full name and address of the beneficiary
-Beneficiary bank details in tag 57D of
MT101 message: China CNAPS clearing
code + name and address of the
beneficiary bank
-Remittance information in tag 70 of
MT101 message: payment business type
code + payment business type + contract
or invoice number
Shanghai branch is the beneficiary bank,
5. Beneficiary bank credits funds to
the CNAPS code to use is 782290000018
the benificiary
-Payment business type
Controls:
Trade related payment
-Check validity of the payment: payment
Service related payment
business type + contract or invoice number
Capital item related payment
Others (income/current transfers,
charity donations, remittance of profit,
etc.)
4. Routing towards beneficiary bank
-Use payment business type code
(regulatory reporting)
-Use local CNAPS clearing code (routing)
3. RMB payment execution
-Control the payment business type code
-Control or search the payment business
type
All About RMB｜05
-Search the local CNAPS clearing code
based on the BIC and beneficiary or
beneficiary bank address (if not provided
earlier)
The RMB: en route to
becoming a reserve currency
Key points:
Quotas for investment in China have increased fivefold.
More central banks and sovereign wealth funds are using RMB for global investments.
RMB will probably be included into SDR in the next few years.
RMB as an investment currency
With the Chinese economy gaining momentum in world trade finance, RMB is now the second most used documentary credit
currency in the world and also used by more than 60 central banks and sovereign wealth funds for their global investments.
With the acceleration of RMB internationalisation, the scale and availability of QFII, RQFII and three institution quotas are
increasing rapidly and 32 countries have signed bilateral currency swap agreements with China.
Indeed, RMB is not only strengthening its role as an investment currency, but also progressing to become a reserve currency. We
estimate that RMB is going to be included in global indices like MSCI and FTSE and probably the IMF’s Special Drawing Rights
(SDRs) within the next few years, and overtake the Japanese Yen to become the world’s third reserve currency within three years.
QFII scheme
Since 2002
Three Types of Institutions
Since 2010
RQFII scheme
Since 2011
Shanghai-Hong Kong Stock
Connect
Since the start of RMB internationalisation in
2009, a variety of schemes (Three types of
institutions, RQFII, Shanghai-Hong Kong Stock
Connect) have been introduced, providing foreign
investors with access to the onshore Chinese
market.
Until May 2015, the RQFII quota granted has
reached CNY 370 billion with 12 countries and
more than 110 institutions worldwide have access
to the onshore RMB market.
The total quota available for investments in China
now is at more than CNY 1.5 trillion.
RMB bio
1600
Total: 1.5 tio
1400
1200
300
Shanghai-Hong
350
Three Types of
Kong Stock Connect
(Northbound)
1000
x6
Institutions
800
600
383
RQFII
400
200
460
QFII
250
0
2002
2015
Sources: SAFE, BNP Paribas, data as of May 2015
All About RMB｜06
Since 2014
Difference between SDR and COFER
Composition of Official Foreign
Exchange Reserve (COFER)
≈ Reserve currency status
Definition
An IMF qualification showing proportion on the
Speical Drawing Right (SDR)
≈ IMF currency participants
An IMF currency used for investment and financing
currency composition of official foreign exchange
reserves
Current
composition
Criteria for
inclusion
U.S dollar, Euro, Pound sterling, Japanese yen, Swiss
U.S. Dollar, Euro, Pound Sterling and Japanese Yen with
franc, Australian dollar, Canadian dollar and other
weights of 41.9%, 37.4%, 11.3% and 9.4% respectively
currencies
(effective date: 1st January, 2011)
- Full convertibility
- Quantitative “Gateway” Criterion: World’s top
- The hurdle for inclusion into COFER looks to be
exporters of goods and services
higher than SDR integration
- Qualitative “Freely Usable” Criterion: Widely used and
widely traded
Review process
A survey of all COFER reporters will be conducted by
- Must be voted on in the SDRs Department of the IMF
IMF’s Statistics Department and decision is made base
and pass with 85% of majority
on the survey outcomes
- On an ad hoc basis, not every 5 years
Source: International Monetary Fund
RMB inclusion into SDR
SDR is a fast tracker for RMB to evaluate its potential to become a world reserve currency, but the standard for integration into
SDR is lower than the one required for COFER.
Why
Impact
The volume of RMB-denominated
Including the RMB within a basket
trade settlement has reached RMB
of free-floating, convertible
6.5 trillion in 2014, accounting for
currencies may encourage Chinese
2.06% of the world’s inbound and
government to speed up reforms in
outbound trade.
domestic markets like the debt &
9.43% of the global documentary
foreign exchange markets and the
credit payments are settled in RMB.
As a reserve currency, 60 central
banks and sovereign units already
hold some form of RMB assets in
their investments, making it the
seventh largest reserve currency by
popularity.
RMB has not only a strong case to
be included in the currency basket,
but will also contribute to create a
more balanced multipolar currency
system.
financial system in general, adding
more fuel to the engine of the RMB
The benchmark interest rate for SDR is
based on an 3-month average weighted
floating rate on debt in the money
markets of the four SDR basket currencies.
Although China has development its own
3 months Shibor, the core interest rates in
the loan & deposit markets are still driven
by PBoC benchmark.
maturing as an international
The onshore CNY market is still heavily
currency.
regulated. Foreign investors are only
The RMB may be able to broaden
the SDR’s role in resolving
balance-of-payment difficulties,
providing an important offset to
weaker currencies in the SDR basket
caused by the unwinding global
imbalances.
The RMB’s inclusion will make the
value of the basket more
representative of the structure of
world trade.
All About RMB｜07
Challenges
allowed to invest in a limited scope of
cross-border securities products under
QFII and RQIIF scheme. The cross-border
funding from CNH market is subject to the
“borrowing gap”. Foreign exchange rate of
CNY is still heavily driven by PBoC
monetary policy.
Inclusion of the RMB into the SDR is
subject to the US veto right: As such
strong political support will be needed
from all global players.
The 2nd largest
equity market in the world
Key points:
30 years of equity market development in China.
It is now the second largest market with a market capitalisation of USD 9.6 trillion.
Highly liquid market available to offshore investors only through quota or synthetic solutions.
The recent bullish market in A-shares is mainly policy driven.
Characteristics of China’s equity market
Ranking
1
Country / Exchange
Market
capitalisation
USD bio
United States
26,054
NYSE Euronext
19,223
Nasdaq OMX
6,831
China
9,596
Shanghai Stock Exchange
3,986
Hong Kong Exchange
3,325
Shenzhen Stock Exchange
2,285
London Stock Exchange
6,187
4
Tokyo Stock Exchange Group
4,485
5
NYSE Euronext (Europe)
3,321
6
TMX Group
1,939
7
Deutsche Boerse
1,762
2
3
Source: World Federation of Exchanges, data as at December 2014
Investors underweight China in comparison to its economic
influence
China has significant influence on the global economy:
- Today, China is the largest economy in Purchasing Power
Parity terms.
Most global investors substantially underweight China. Global
investors are estimated to hold less than 2% in Chinese equity.
The Chinese government is undertaking fundamental changes to
the “growth mode”:
- Gradual structural reforms for sustainable development:
state-owned enterprise (SOE) reforms, land reforms, fiscal
reforms, government reforms etc.;
- Financial reforms to build healthy and vibrant capital
markets: interest rate liberalisation, foreign exchange reforms,
IPO reforms etc;
- Private Public Partnership IPO liberalisation.
Equity markets overview
Share type
Definition
A
Listing in Shanghai or Shenzhen
bourse, denominated in RMB
B
Listing in Shanghai or Shenzhen,
denominated in US or HK dollar
Yes
47
Listing in Hong Kong,
denominated in HK dollar
Yes
915
Listing in NYSE and NASDAQ
denominated in USD dollar
Yes
1,405
Listing in Taiwan,
denominated in NT dollar
Yes
16
(Finance, Machinery, Pharmacy...)
(undervalued sectors)
H/Red Chip
China Stocks listed in US
(Internet, new clean energy ...)
Taiwan Stocks
(Semicon, LCD...)
Availability to foreign investors
Yes, but only after acquiring QFII / RQFII
licence or through SH-HK stock connect
Market cap (in USD bio)
9,150
Source: BNP Paribas Investment Partners, Bloomberg, data as at June 2015
All About RMB｜08
Summary of A,B,H,N and Taiwan shares
The China A-shares market is driven by “news flow”
The China A-shares market is highly liquid:
- Portfolio turnover tends to be significantly high;
- In terms of daily turnover, Shanghai and Shenzhen combined are the most liquid markets in Asia (Source: World
Federation of Exchanges);
- Liquidity varies over time due to market sentiment and monetary conditions.
“News flow”-driven nature of the market is enhanced by:
- A large proportion of retail investors;
- An unprecedented level of IPO activity until 2012, increased rapidly after market reopened in January 2014;
- Frequent rotation between sectors and themes.
Source: BNP Paribas Investment Partners
Market capitalisation and turnover of major exchanges
USD
trillion
30
Market Cap
1 Year Turnover
Number of inital public offerings (IPOs)
1 Yr Turnover as % of Market Cap (RHS)
250%
214.8%
25
200%
USA
Japan
Hong Kong
China
350
300
250
20
150%
200
15
111.0%
107.0%
100%
10
66.6%
100
55.6%
5
0
USA
China
Japan
UK
150
Euronext
46.9%
Hong Kong
42.6%
Germany
50%
0%
Source: market cap as of 30 November 2014, 1 year turnover based on total turnover
from Dec 2013 to Nov 2014, US: NYSE + NASDAQ; UK: LSE; Germany: Deutsche Börse;
China: SSE+ SZSE; Japan: TSE+OSE (OSE estimated on historical data); Hong Kong: HKSE.
World Federation of Exchanges, BNP Paribas Investment Partners, December 2014.
50
0
2008
2009
2010
2011
2012
2013
2014
Source: Number of new companies listed includes new companies listed through
an IPO and other procedures, e.g. split, merges etc., World Federation of
Exchanges, BNP Paribas Investment Partners, as of February 2015.
The A-shares market is policy driven
Sentiment on A-shares equities is bullish:
Easing in monetary policy, such as the cut in
interest rates and required reserve ratio, along
with reform expectations (SOEs, financial reforms)
and new initiatives such as “one road, one belt”
and Asia Infrastructure Investment Bank (AIIB), are
the driving forces in the market boom.
Declining returns from investments in property and
wealth management have shifted the investment
flows to the equity market. “Trust product”
reallocated 6% of their assets into equity.
Margin trading: leverage has been promoted by
onshore brokers.
New mechanism introduced: Stock Connect.
A-shares accounts with transaction and CSI 300 index
A shares account with transactions
CSI 300 Index
6000
60
5500
50
5000
4500
40
4000
30
3500
3000
20
2500
10
2000
0
05/2008
05/2009
05/2010
05/2011
05/2012
05/2013
05/2014
1500
05/2015
Source: Bloomberg, data as at June 2015
All About RMB｜09
A-shares valuation - Looking ahead in 2015
Acceptance of more sustainable “New normal” in China
growth.
Monetary / fiscal stimulus and government reforms.
Alternative asset classes for local investors have become
unfavorable, triggering a return of the retail investor to
the A-shares market:
P/E ratio comparison
26.00
23.7
24.00
22.00
20.8
20.00
- Real estate market continues its downturn;
- Regulatory tightening of shadow banking and the
wealth management products connected to it;
18.00
- Declining interest rate cycle.
16.00
Introduction of more foreign investors into A-shares
through the Stock Connect and RQFII expansion.
14.00
17.4
17.4
MSCI Japan
MSCI AC
World
18.0
18.6
18.6
S&P 500
MSCI
Australia
15.4
CSI 300
MSCI
Indonesia
MSCI India
MSCI
Europe
Source: Bloomberg, data as of March 2015
Characteristics of H-shares
H-shares are stocks of companies incorporated in PRC that are listed on the Hong Kong Stock Exchange and are freely
tradable for foreigners. PRC investors are allowed to trade H-shares through the Shanghai-Hong Kong Stock Connect.
H represents Hong Kong. A and B-shares are open to both mainland and foreign investors. A-shares are traded in RMB while
B-shares are traded in USD.
17 Jun 1993
19 Jun 1993
Listing Rules of
MoU between
H-shares
CSRC, SSE, SZSE,
announced
SFC, SEHK
27 Oct 2006
15 Jul 1993
First company that
First H-shares
simultaneously
company listed
listed in A and
H-shares
Industry split - A-shares versus H-shares
Dual listing
Access to all markets is essential due to the following paradox:
The markets are complementary;
H-shares
206
There is a significant difference in sector weights between the different types of shares.
Offshore & onshore markets provide a different exposure to China
Utilities 3%
Telecommunications 1%
information Technology 4%
Consumer staples 4%
Materials 5%
Consumer
discretionary 7%
Telecommunications 2%
Utilities 2%
Consumer
discretionary 4%
Industrial 13%
A-shares
2733
Mispricing/inefficiencies
(Source: Wind, May 2015)
Materials 3%
Industrial 3%
Consumer staples 3%
Health care 1%
Health care 3%
Financials 46%
Dual
listing
88
Financial 68%
Energy 16%
Energy 14%
CSI 300 (Shanghai and Shenzhen Listed)
Source: Bloomberg, February 2015
Hong Kong China Enterprise Index (HK Listed)
Source: Bloomberg, February 2015
All About RMB｜10
The dual listings provide trading opportunities;
Investor base - Proportion of institutional/retail investors
HKEx
participants’
principal trading
Financial
institution 15%
Overseas
institution 24%
50%
A-shares
H-shares
Overseas
retail
3%
Local
retail 7%
Industrial
capital 4%
Individual 81%
Local
institution 21.3%
A-shares are driven by retail
H-shares are driven by institutional investors
Source: CICC Equity Research, December 2014
Source: Hong Kong Stock Exchange, June 2014
For A-shares, individual
investors account for 25%
of the market
capitalisation, and 80% of
the trading volume.
On the other hand,
industrial capital account
for over 57% in float market
capitalisation for A-shares,
and has a trading volume
of below 4%.
Game changer: RMB will be included in global stocks and bonds indices
RMB’s inclusion in global indices would drive large amounts of capital into China’s onshore markets. As access barriers disappear, China
A-shares could become a viable investment opportunity set for global investors.
China currently represents 2.2% in the MSCI SC World Index. Should A-shares be added, the total exposure would rise to 4.1% (source:
MSCI, as of March 2014).
FTSE has begun a transition to include China A-shares in its global benchmarks with the launch of two transitional indexes for emerging
markets. The initial weighting of China A-shares in the FTSE emerging inclusion index will be approximately 5% and is expected to
increase to 32% when China A Shares are fully available to international investors.
Partial inclusion
probably May 2016 (5%*)
Current status
ID
TH 2%
3%
MY
4%
Others
9%
MX
5%
H-share
10%
Red chip
5%
P Chip
4%
B-share
0%
IN
6%
KR
16%
RU
6%
A-shares
H-share
1%
10%
Red chip
5%
P Chip
4%
MX
5%
IN
6%
RU
6%
SA
8%
Others
ID 9%
TH 2%
3%
MY
4%
TW
11%
BR
12%
Potential full inclusion (100%*)
ID
TH 2%
2%
MY
3%
MX
5%
B-share
0%
IN
5%
KR
16%
RU
6%
Others
8%
A-shares
10%
H-share
9%
Red chip
5%
P Chip 4%
B-share 0%
SA
7%
SA
7%
TW
11%
BR
12%
KR
14%
TW
10%
BR
10%
Source: MSCI, as of March 2014
*The percentage number refers to the Inclusion Factor applied to the free float-adjusted market capitalisation of China A-share constituents in the pro forma MSCI China Index.
China A-share securities are subject to a foreign ownership limit. Data as of 18th October 2013.
A progressive MSCI A-shares inclusion in the emerging market universe
The A-shares inclusion in MSCI emerging markets universe will be progressive: even if MSCI welcomes A-shares inclusion in its
emerging market universe, an initial 5% cap factor should be applied on A-shares. China A-shares are likely to contribute approximately
1% to the MSCI EM index at the beginning, which represents a large step towards the A-shares internationalisation. A full inclusion will
take time, and require 1) the abolition of quota systems, 2) the ease of capital mobility restrictions, 3) the alignment of international
accessibility standards.
Potential large impacts on MSCI China, EM and EM Asia
As part of the November 2015 Semi-Annual Index Review, foreign-listed companies will become eligible for inclusion in the MSCI Hong
Kong and the MSCI China Indices within the MSCI All Country World Index (ACWI). According to MSCI, 17 US-listed Chinese companies,
mostly Internet companies, will potentially be included in MSCI China, EM and EM Asia, increasing the weighting (adding 11.4% to
23.9%) of the IT sector in MSCI China at the expense of major sectors such as Financial (-5.4%), Telecom (-1.5%) and Energy (-1.4%).
Accordingly, China’s weighting in MSCI EM and MSCI EM Asia will expand respectively by 2.8% and 3.51%.
All About RMB｜11
Margin trading and short selling gradually expand
Since the launch of short selling and margin trading pilot programmes in 2010, the scheme has been gradually expanded with the
hope to add liquidity and improve price discovery in the stock market.
By the end of March, the margin balance in Shanghai and Shenzhen Exchanges amounted to CNY 14.9 trillion with more than 900
stocks allowed for margin trading and short selling. Margin balance on manufacturing industry companies is approaching CNY 5.8
trillion, followed by financial and information software industries.
But still, the Chinese authorities put strict limitations on the practice such as speculative betting on the price tumbling, which will
lead to higher volatility or even a crash in the stock market. Brokerages can only trade on margin for highly liquid tickers in profitable
companies, and opportunities for targeted short selling are also highly restricted.
March 2015
November 2011
30 brokerages were allowed to
CSRC launched the margin
trading and short selling pilot
programme where only 90
stocks were allowed to be
invested.
CSRC expanded the list of
margin trading and short
selling to 190 stocks and 7
Exchange Traded Funds
(ETFs).
March 2010
trade on margin and short sell
287 stocks, comprising 64.3
percent of the Chinese
A-shares market's capitalisation
Short selling of stocks is
eligible for trading under the
Shanghai-Hong Kong Stock
Connect Programme
September 2013
Source: BNP Paribas
New stock index futures enriched the onshore derivatives market
China Securities Index (CSI) 300 futures, made up exclusively of large-cap shares, especially banks and state-owned industrial
conglomerates were considered a breakthrough in 2010 because they expanded investors’ ability to conduct short selling.
In April 2015, two new stock-index futures tracking the Shanghai Stock Exchange 50 and CSI 500 were launched on the China
Financial Futures Exchange.
These two index futures, with a focus on the medium and small-cap stocks, will greatly expand the short selling toolkit for A-shares.
Onshore option market opens up
Stock options were launched for trading in the Shanghai Stock Exchange in February 2015
China’s derivatives market has been further developed this year. The launch of stock options provides equity investors with new tools
to diversify their portfolios and manage risks in a market where short selling is still highly restricted. For the fast-growing hedge
fund industry, options also provide a new tool to add leverage to a portfolio. This trial programme is based on the China 50
exchange-trade fund (ETF) which tracks the 50 most heavily weighted stocks on the Shanghai Stock Exchange.
This onshore option is restricted to domestic investors only: Eight local brokers are the underwriters who can buy the China 50 ETF
to hedge when investors buy calls and sell puts. Short selling remains unavailable to foreign investors.
China 50 ETF is not in the Stock Connect Northbound list: Offshore brokers cannot use the Stock Connect to buy China 50 ETF as it is
not in the 568 eligible stock list for Northbound trading.
All About RMB｜12
The market remains closed to participants in the Shanghai-Hong Kong Stock Connect programme.
The 3rd largest
bond market in the world
Key points:
China’s bond market has been developing over the past 20 years.
It has reached USD 5.8 trillion, with 20% annual compounded growth in the last ten years.
The bond market will be used by the Chinese authorities to disintermediate financing and
liberalise interest rates.
China’s bond market - A little bit of history
Ministry of Finance (MoF)
resumed issuing
government bonds
Commercial Papers (CPs),
Senior and Sub financial
bonds (LT2), ABS, Panda bonds
Introduction of the
exchange bond market
and OTC market
Collection Notes
issued by SMEs
Medium-Term
Notes (MTNs)
Establishment of
Interbank bond
market
Credit Risk
Mitigation
Instruments
CSRC Launched
Corporate Bonds
1988
1992 1993 1994 1995
1997
Qualified foreign central banks
RMB clearing banks in HK and Macau
Offshore RMB trade settlement banks
Allowed to invest directly in inter-bank
bond market
The start of the Dim Sum market
2002
Market mechanism development
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
QFII Quota invested
in the exchange
bond market
Scale expansion of QFII and RQFII
More bond underwriters
Expansion of investment scope for insurance companies
Green light
to local
government
bonds
RQFII quota
launched to
invest in onshore
bond market
PBoC Bills
1981
Simplified
ABS
issuance
process
2014
Interest Rate Swap
(IRS) and Hybrid
capital (UT2 bonds)
Private Placement Notes (PPN)
bonds for SMEs
Resumed ABS
Resumed Treasury Bond Futures
QFII allowed to enter
inter-bank bond market
RQFII quotas granted to
offshore RMB centers
Product innovation
By the end of April 2015, the total amount of bonds outstanding in China’s bond market stood at CNY 37 trillion, representing more
than 50% of China’s GDP in 2014. It is now the third largest bond market in the world after the U.S. and Japan.
China’s bond market breakdown
The Chinese bond market CNY 37.0 trillion
CNY trillion
40
Credit bonds
56% of GDP
37.0
35.9
Rate bonds
35
26.2
25
18.1
20
10
0
90%
80%
43%
4.8
6.0
8.0
9.8
12.9
50%
57%
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
YTD
Source: Wind, BNP Paribas, as of May 2015
All About RMB｜13
70%
60%
22.4
15.7
15
5
20.7
PBoC Bills
Financial Bonds
100%
29.9
30
Government Bonds
Policy Bank Bonds
Corporate Bonds
40%
30%
20%
10%
0%
2002
2003
2004
2005
2006
2007
2008
Source: Wind, BNP Paribas, as of May 2015
2009
2010
2011
2012
2013
2014
2015
YTD
Equity Market
Growth of the market - Driven by corporate bonds
Two onshore markets - Interbank and exchange listed
Onshore
Rate
Bonds
Onshore
Credit
Bonds
Bond Type
Market
Share
Issuing Entities
Tenor
Market
Primary market
regulations
Secondary market
regulations
Government bonds
26.7%
Ministry of Finance
3m - 50yr
Interbank &
Exchange
The State Council,
MoF
CSRC, NAFMII
Local government
bonds
3.2%
Local governments
3yr, 5yr
Interbank &
Exchange
MoF
CSRC, NAFMII
Interbank
PBoC
NAFMII
(through the MoF platform)
Central bank (PBoC)
bills
1.2%
PBoC
3m, 6m,
1yr, 3yr
Policy bank
financial bonds
27.0%
Policy banks, including
CDB, ADB, EXIM Bank
6m - 30yr
Interbank
PBoC
NAFMII
Commercial
paper (CP)
5.2%
Non-financial firms
1yr or below
Interbank
NAFMII
NAFMII
Medium term
noted (MTNs)
9.4%
Non-financial firms
3yr, 5yr,
7yr, 10yr
Interbank
NAFMII
NAFMII
Financial bonds
6.3%
Deposit-taking institutions
and other financial firms
2yr - 15yr
Interbank &
Exchange
CBRC, PBoC
NAFMII
Enterprise bonds
8.1%
Unlisted enterprises
3yr - 30yr
Interbank &
Exchange
NDRC
CSRC, NAFMII
Listed-company
bonds
2.1%
Listed companies
3yr - 30yr
Exchange
CSRC
CSRC, NAFMII
Private placement
4.9%
Non-financial firms
Below 3yr
Interbank
NAFMII
NAFMII
Interbank &
Exchange
The State Council
CSRC, NAFMII
Major bond types
by markets
Central Bank Bills
Mid-term Papers
Commercial Papers
Policy Bank Bonds
Chinese
Government Bonds
Enterprise Bonds
Company bonds
Government-supported
corporate bonds
2.8%
China Railway Corp.
7yr - 30yr
Interbank Certificate
of deposits (CDs)
1.8%
National commercial
banks
1m, 3m, 6m,
9m, 1yr
Interbank
CBRC, PBoC
NAFMII
Asset-backed
securities (ABS)
0.9%
Financial & nonfinancial institutions
1yr - 30yr
Interbank &
Exchange
CBRC, PBoC
CSRC
CSRC, NAFMII
Convertible bond
0.4%
Listed companies
& banks
5yr - 10yr
Exchange
CBRC, PBoC
CSRC
CSRC, NAFMII
Company bonds
with Warrants
Convertible Bonds
Inter-bank Market 96%
Inter-bank & Exchanges
Exchange Market 4%
Source: Wind, BNP Paribas, February 2015
Investor base - Onshore market just opening up to the world
Policy banks 6%
Foreign 2%
Others 11%
Managed
funds
Banks and insurance companies are the
dominant players– they are more
conservative and tend to buy and hold.
Domestic 98%
Foreign investors still represent a very
small portion of the market but are
growing - thanks to increasing quotas.
12%
There are 3 types of trading accounts,
Type A, B, C. Offshore investors qualify
for C status.
Insurance
companies 8%
Commercial banks 63%
Source: Chinabond, BNP Paribas, as of February 2015
Historical market review
5yr Policy Bank Financials (CDB)
8.0
8 months
7.0
6.0
-255
5.0
-259
4.0
3.0
2.0
1.0
The CNY 4 trillion
investment
programme
stimulated the
economy
5yr AAA Corp
PBoC raised
interest rates
and RRR
PBoC raised
benchmark
rates twice
5yr AA+ Corp
9 months
11 months
1. "Cash crunch"
2. Interest rate liberalization
3. PBoC tightened liquidity condition
-193
-160
-290
-169
-253
-121
Influenced by the
financial crisis,
PBoC cut interest
rates sharply
European debt
crisis deepened,
PBoC continued to
cut RRR
PBoC cut
interest rates
and RRR again
1. SLO, MLF, PSL
2. PBoC targeted RRR cuts
3. PBoC cut interest rates
0.0
Source: Wind, BNP Paribas
All About RMB｜14
5yr CGB
%
China’s onshore bond market – Base rate and credit spreads
Global government yield curves
US
UK
Japan
RMB bond credit spreads
German
China CNH
4.50
10
4.00
9
3.50
8
Yield (%)
2.50
2.00
CNH government bonds
CNY government bonds
6
5
4
1.50
3
1.00
2
0.50
-0.50
AA
AA+
7
3.00
0.00
AAAAA
Policy bank bonds
China CNY
1
6M 1Y
2Y
3Y
4Y
5Y
6Y
7Y
8Y
9Y 10Y 12Y 15Y 20Y 25Y 30Y
0
0
0.25 0.5 0.75
1
3
5
7
10
15
20
30
40
50
Maturity (years)
Source: Wind, June 2015
Source: Bloomberg, BNP Paribas Investment Partners, June 2015
The government bond curve is relatively flat with little
risk premium for long tenor bonds.
Central government plays a dominant role in allocating
credit in the economy:
There is value in the short end of the curve for investors
looking at comparable U.S., European or Japanese
government bonds.
- Only firms with high credit ratings can access the
corporate bond market. Therefore most issuers have a
local AAA rating;
The stability of the Chinese Yuan in the face of the recent
Asian and global crisis, plus the relatively high level of
risk free government bonds, makes it a relevant product
to invest in.
- Most of the frequent issuers are state-backed enterprises;
- Some big private sector companies also have access to
debt markets;
Once again access/quota is the issue as the offshore
government bond offer is extremely limited in size.
With its age-dependency ratio evolution, China might
become one of the major issuers in the global financial
markets in the future.
- The buildup of a proper credit curve pricing is very high
on the priority list of the Chinese authorities as credit
bonds will play a very important role in the
disintermediation of the economy.
Returns can reach up to 5% yield for AAA issuer with 5
years maturity.
Onshore rating system – Little credit differentiation?
Historical upgrade / downgrade
China bond market
Upgrade
Downgrade
Up/Down Ratio
32.0
140
120
Chinese corporate ratings
25.7
25.0
100
25.8
25
11%
42%
3%
9%
20
60
15
14.5
40
Equity
The
3rdMarket
largest bond market in the world
13%
30
80
4.8
20
0
35
2008
2009
2010
2011
2012
2013
7.1
44%
10
77%
5
2014
Source: Bloomberg, Wind, BNP Paribas
0
SOE
Local SOE
Non SOE
AAA
AA+
AA
AA- and lower
Source: Wind, BNP Paribas
Local credit rating agencies
Three major domestic credit rating agencies (over 90% market share). The PBoC serves as the main supervisory
authority of the credit rating industry.
CCXI (中诚信) – established in 1992, a joint venture partner of Moody’s (49% stake).
China Lianhe Credit Rating (联合资信) – established in 2000, a joint venture partner of Fitch Ratings (49% stake).
Dagong International Credit Rating (大公国际) – established in 1994, has all franchise qualifications in China.
Since corporate default data is very limited, domestic debt rating cannot sufficiently reflect the full differences in
credit quality among various issuers.
All About RMB｜15
Local government bond - Restructuring local government debt
Opening the front door while blocking the side doors
A pilot programme was launched in 2014 that allows 10 regional governments to issue and repay bonds directly. Before that,
the MoF issued and repaid local government bonds on behalf of regional governments. The programme is expected to be
made available to all provincial and municipal governments later in 2015.
On 8th March 2015, China’s Ministry of Finance (MoF) announced that local governments could issue the new municipal or
provincial bonds to replace RMB 1 trillion of maturing, high-interest local debt. It will cover 53.8% of direct local government
liability with a total amount of RMB 1.86 trillion and mature in 2015. Also, on 17th March MoF released rules on the issuance
of general local government bonds for public projects without generating revenue and being repaid by the local fiscal
revenue. Public projects that are expected to generate revenue will be funded by special local government bonds with the
rules to be released soon. The local government bond issuance is expected to reach RMB 1.77 trillion in 2015.
Local government bonds will solve the duration problem of previous local debt contracted through Local Government
Financing Vehicles (LGFV)
Before the introduction of local government bonds, most local infrastructure investments were financed through Ministry of
Finance, bank loans and LGFV. The latter two methods carry major systemic risks: inadequate duration of the borrowing (less
than 2 years) compared to the project duration (usually more than 15 years), heavy reliance on bank intermediation, high
cost of funds, doubtful credit pricing and questionable state guarantee. In the grand scheme of its financial reforms, China is
looking for a better mechanism for the onshore credit market by allowing defaults while, at the same time, fostering bank
disintermediation and the build-up of a more active buy-side industry. Moreover, through a transparent and regulated
delivery system, issuance of local government debt will be better accounted for and will thus eventually replace complex
LGFV financing.
Local government debt (in RMB trillion)
Local government bonds issuance
Period
China government
bond issuance
Policy bank bond
issuance
Rates bond
issuance
0
1.69
2.06
4.10
0.29
0.11
1.77
2.33
4.50
0
1.77
1.90-2.00
2.50-2.70
6.17-6.47
Through MoF
Pilot programme
2013
0.35
2014
2015E
Asset backed securities - New mechanism for risk transfer
ABS issuance further promote
disintermediation and risk transfer by allowing
banks to share financing risk with a greater
community than before. Currently, banks in
China provide 80% of all financing and hold
2/3rds of onshore bond investment in China’s
interbank bond market, which is not a long
lasting solution.
Issuing Amount of ABS
RMB billion
350
322.9
300
250
200
150
100
50
0
56.6
17.3
2005
28.0
2006
17.8
2007
30.2
1.3
2008
2011
22.4
23.2
2012
2013
2014
2015
YTD
Underlying asset class
Residential
mortgages 3%
Leasing rentals
3%
1%
Bank receivables
Corporate receivables
Corporate loans
73%
Car loans
10%
3%
Non-performing loans
Infrastructure toll fee
Credit card receivables
3%
2%
1.5%
Source: Bloomberg, April 2015
All About RMB｜16
Asset backed securities (ABS) issuance by
banking institutions is subject to pre-trade
filing with CBRC instead of the approval
process previously. The ABS listed and traded
on exchanges market only require regulatory
filings with CSRC after inssuance rather than
prior approvals. In addition, according to
PBoC’s new regulations released on 3rd April
2015, only registration but not approval from
PBoC is required for the ABS issuance in the
CIBM. Due to the simplified process, we expect
the ABS market will boom in 2015 with the
issuance amount to approach approximately
RMB 600 billion in 2015.
Stable growth in the CNH market
CNH Market Yearly Supply
CNY bio
900
450
800
700
300
600
250
500
200
400
150
300
100
200
50
100
0
2007
2008
2009
2010
2011
2012
2013
2014
CNY bio
New issue volume
Number of Issues
350
Number of Issues
New Issue Volume
400
1200
CNH Bond Outstandings
1000
HK CNY Deposit
CNY 952bio as of Mar 2015
800
Supplydemand
imbalance
600
400
CNY
359bio
200
0
2007
0
2008
2009
2010
2011
2012
2013
2014
Source: Bloomberg, BNP Paribas
Pool of RMB deposits in Hong Kong totalled CNY 952 billion by the end of March 2015. Although investors no longer expect CNY
to appreciate considerably and CNY fund growth rate has slowed, insufficient investment products have still led to a significant
supply-demand imbalance, which drives the growth in the CNH bond market. RMB deposits in Taiwan have reached CNY 330
billion and will continue to grow as Taiwanese retail switches more and more investments towards RMB.
Offshore CNH bond market - Investor base
Recent CNH transactions investor distribution
Other
Europe
2%
Other
5%
Institutions
& Pension
11%
Asset / Fund Managers
35%
11%
Singapore
Private
Banks
14%
20%
Banks
HK/ China
29%
73%
Source: BNP Paribas, as of December 2014
Onshore versus offshore – Yield analysis
Onshore and offshore central government bond (CGB) yields have converged with certain tenors of offshore CGBs now trading
higher than onshore CGBs. As the capital account is gradually liberalised and the RMB is internationalised, the basis may not
become wider. Funding conditions and currency expectations continue to drive the level of yields. Benchmark funding rates on and
offshore have also converged.
Wide spread between onshore and offshore
5
Onshore CGB bond (current)
Onshore CGB (year ago)
Offshore CGB (current)
Offshore CGB (year ago)
RMB onshore & offshore benchmark rates
SHIBOR versus RMB HIBOR
Price
CNH
4.5
SHIBOR
HIBOR
5.60000
4
5.20000
3.5
4.40000
3
4.00000
3.73686
3.60000
4.80000
3.20000
2.5
2.80000
2
2.40000
2.00000
1.5
1Y
2Y
3Y
4Y
5Y
6Y
7Y
8Y
9Y
10Y
All About RMB｜17
Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014
Q1 2015
Q2 2015
Source: Reuters
RMB interest rate derivative
market
Cross currency swap market
The front end tends to be dominated by a tug of war between currency expectations and arbitrage flows. Specifically, CNH FX forwards
tend to reflect currency sentiment similar to non-deliverable forward (NDF) markets in restricted currencies. Bullish RMB expectations
tend to depress implied yields and depreciation expectations tend to elevate them. The protagonists here are typically hedge funds,
structured product investors and other directional players.
Acting against this pressure is the onshore-offshore differential driven by banks and corporates, which tends to align the offshore forward
outrights with the onshore market. In the longer end, liability swapping by offshore issuers in CNH tends to dominate.
Yield (%)
5.3
While there is an active CNH bond market, banks tend to rely
on either issuing short-dated certificates of deposit (CD) or
tapping the cross currency swap (CCS) market. The CD rate
and the 1 year CCS yield typically track each other with CD
yields generally trading at a small spread above 1 year CCS.
Corporate hedging mostly takes place in 1 year to 3-year
tenors, not only in USDCNH but also in EURCNH.
FX expectations
5.1
Onshore / offshore differential
4.9
4.7
Foreign issuers’ hedging flows
4.5
4.3
Exporters’ hedging flows
In the longer end, for instance, 3 years and beyond, liability
swapping by offshore issuers in CNH tends to dominate. These
issuers are generally foreign corporates which are tapping cheap
CNH funding for use outside China. They tend to be receivers on
the CNH CCS curve in order to hedge their currency liability.
4.1
3.9
Banks’ CD issuance
Tenor (years)
3.7
0
1
2
3
4
5
6
7
Source: BNP Paribas
Interest rate swap market
7d repo fixings
%
6.5
%
5Y offshore-onshore spread (RHS)
CNY 5Y NDIRS
CNY 5Y IRS
6
6.25
5.5
5
6.2
4.5
20
5
10
4.5
0
-10
4
4
-20
3.5
6.15
3.5
3
6.1
01-Jul-14
2.5
01-Sep-14
01-Nov-14
01-Jan-15
01-Mar-15
bp
30
5.5
-30
3
2.5
01-Jan-13
-40
01-Jul-13
01-Jan-14
01-Jul-14
01-Jan-15
-50
Most of the investors in the offshore non-deliverable interest rate swap (NDIRS) market are investors taking a view on the macro
and liquidity outlook for China. These include mainly real money managers, hedge funds and banks. Both onshore and offshore IRS
use the onshore 7-day repo fixing as the floating reference. The 7-day repo rate is in turn driven by liquidity in the interbank
money market and open market operations of the PBoC. Seasonal factors like the Lunar New year, tax payments, required reserve
ratio (RRR) payments can also affect near-term liquidity conditions. With the monetary policy toolbox of PBoC expanding to include
short-term liquidity operations (SLOs), standing lending facility (SLF), medium-term lending facility (MLF) and pledged
supplementary lending (PSL), these are also drivers of liquidity in the market.
The NDIRS market tends to be more speculative than the onshore IRS curve. As a result, the curves can diverge from each other
and the basis can persist for some time, especially if offshore players remain bearish towards China.
All About RMB｜18
RMB interest rate derivative market
USD/CNY
%
6.3
RMB FX market
More and more convergence between onshore and offshore FX markets
USDCNY onshore Deliverable Spot/Fwd
Key Features
USDCNY Non-Deliverable Fwd (NDF)
USDCNH Offshore Deliverable Spot/Fwd
It is a deliverable RMB market but
in onshore China only
Offshore non-deliverable RMB
market
Offshore deliverable RMB market
traded outside China
Spot and forward are allowed
Usually cash settled in USD
Spot and forward are allowed
Full range of derivative products
No spot, only NDF
Daily trading band +/- 2% of PBoC
Fixing
Fixing Page, Reuters “CNHFIX=”
11:15am Hong Kong time,
contributed by 18 banks in HK
including BNP Paribas
PBoC fixing for NDF/Option,
Reuters “SAEC” 9:15am Beijing
time
Price
/USD
CNY Spot
CNY Fixing
CNH Fixing
6.36
6.34
6.32
6.30
6.28
6.26
Historical
Evolution
6.24
6.2111
6.22
6.2086
6.20
6.18
6.16
6.14
6.12
6.1179
6.10
6.08
Q3 2012
Q4 2012
Q1 2013
Q2 2013
Q3 2013
Q4 2013
Q1 2014
Q2 2014
Q3 2014
Q4 2014
Market liquidity for forward contracts
Onshore RMB
Spot (08 Jun 2015)
Settlement
Liquidity
(as of 08 Jun 2015)
Bid/Offer Spread
Fixing Page
Products allowed
RMB FX market
Market volumes
Liquidity
Q2 2015
Offshore NDF
Offshore CNH
6.2053
Fixing: 6.1205
6.2073
Deliverable Forward
Non-Deliverable Forward
Cash-settled in USD
Deliverable Forward
Daily turnover USD 18 bio
Spot bid / offer 5 pips
Up to USD 20 mio
Spot bid / offer 10 pips
Up to USD 40 mio
Spot bid/ offer 3 pips
Up to USD 5 mio
N/A
Published at 9:15am Beijing time
Reuters Page “SAEC”
Fixed at 11:00am
& published at 11:15am Hong Kong time
Reuters Page “CNHFIX=”
Spot / Forward / Options,
structured products
exotics and structured
products
exotics and structured
products
Source: BNP Paribas, Reuters
RMB FX option
Market players
Q1 2015
Source: BNP Paribas, Reuters
CNY FX option
CNH FX option
Steady growth in the number of participating banks
and market makers (Corporate clients are allowed to
sell CNY FX option since August 2014)
Mainly used by offshore financial institutions such as
Hedge Funds and Risk Managers to hedge RMB FX
exposure and express RMB views
On an upward trend as restrictions are lifted
The average daily USDCNH FX option volume is
approximately USD 7bio. BNP Paribas is a major market
player
Overall liquidity is still low due to semi-pegged/banded
nature of FX in the onshore market
The market is very liquid since there is little restriction
on the use and combination of CNH FX options
Source: BNP Paribas
All About RMB｜19
China is now the biggest steel producer in the world with a
yearly production of 800 million tons, accounting for 50% of
the world’s total output. China's annual output of three main
crops - wheat, rice and corn – is expected to hit 578 million
metric tons in 2023.
China has grown from consuming about 12% of the world’s
metals in 2000 to nearly 50% today and is currently the top
global consumer of raw materials with the most liquid
commodities futures markets. China has also been a key driver
of world oil demand growth.
In agriculture, China accounts for almost 30% of the world’s
total rice consumption while soybean consumption has tripled
in the past decade, making the country reliant on imports.
Production of China’s major commodities
Oil
Cotton
Soybean
Steel
Corn
Rice
Coal
Wheat
Source: BNP Paribas, Food and Agriculture Organisation of the United Nations, as of May 2015
China's agricultural commodity 2014 (million tons)
China's industrial commodity 2014 (million tons)
200
80
4500
1000
180
70
4000
900
60
3500
800
160
140
120
50
100
40
80
30
60
20
40
10
20
0
0
Rice
Production (LH)
Wheat
Corn
Consumption (LH)
Soybean
Import (RH)
Cotton
Export (RH)
700
3000
600
2500
500
2000
400
1500
300
1000
200
500
100
0
0
Crude Oil
Production (LH)
Crude Steel
Consumption (LH)
Iron ore
Import (RH)
Coal
Export (RH)
Source: BNP Paribas, Food and Agriculture Organisation of the United Nations, U.S. Department of Agriculture, National Bureau of Statistics of China, as of March 2015
China has 4 commodity exchanges which are under the management of CSRC. China Financial Futures Exchange (CFFEX) in Shanghai
launched the CSI 300 index and government bond futures. Shanghai Futures Exchange (SHFE) trades futures contracts in copper,
aluminium, zinc, lead, nickel, tin, gold, silver, rebar, wire rod, hot rolled coil, fuel oil, bitumen, and natural rubber.
Dalian Commodity Exchange (DCE) lists futures products that include corn, soybean, soybean oil and meal, linear low density
polyethylene (LLDPE) and PVC, eggs, palm oil, metallurgical coke, coking coal, iron ore, fiberboard, blockboard and polypropylene.
Zhengzhou Commodity Exchange (ZCE) specialises in agricultural and chemical product futures, including strong gluten wheat,
common wheat, cotton, white sugar, rapeseed, rapeseed oil and meal, rice, PTA, glass, thermal coal, methanol and ferrosilicon.
2.5 billion contracts were traded in 2014 on the four mainland exchanges, which were ranked in the top 20 derivatives exchanges in
the world in terms of volume.
The PRC commodity exchanges are only accessible to Chinese investors, but on 31st December 2014, CSRC published draft rules to
allow foreign investors to trade in some of the country’s commodities futures. Earlier, Shanghai’s pilot free trade zone (SFTZ) also
released draft rules to allow spot trading of commodities for foreign investors.
What’s next?
Market is opening up as foreign investors will be allowed to trade oil futures on the Shanghai Futures
Exchange and Shanghai Free Trade Zone opens spot trading of commodities.
China aims at becoming a global hub to trade oil, gas, iron ore, cotton, silver and nonferrous metals.
The Hong Kong Exchanges and Clearing Ltd. (HKEx) is holding discussions with PRC to set up a
commodities link similar to the Stock Connect scheme.
Source: Xinhua, Reuters
All About RMB｜20
China’s growing appetite for metals was illustrated on 15th June 2012, when the Hong Kong Exchanges and Clearing agreed to buy
the London Metal Exchange for GBP 1.39 billion, making it one of the major world metals and commodities exchanges.
Summary of markets and access
FX market
Onshore
Equity market
Bond market
Three Types
of Institutions
Onshore
Products available:
- FX Spot
- FX Forward / Swap /
Long-Dated FX Forward
- FX options / FX-linked
asset products
China
Interbank
Bond Market
(CIBM)
Size: RMB 33tr
Quota granted: RMB 350bio
No. of investors: 60
96% of onshore
bond market
liquidity
- Principle protected FX
products
SH-HK Stock
Connect
Quota granted:
RMB 300bio
RQFII
Onshore (A/B-shares)
Commodity
market
Onshore
Products available:
Shanghai
Stock
Exchange
(SSE)
Market cap:
Shenzhen
Stock
Exchange
(SZSE)
Market cap:
RMB 35tr
USD 6tr
- 2.5 billion contracts
traded in the four
mainland exchanges
- 38 commodity futures
e.g. cotton, oil, iron, etc.
- 2 financial futures
Quota granted: RMB 383bio
- USDCNY onshore
Deliverable Spot /
Forward
Products available:
Size: RMB 19tr
4% of onshore
bond market
liquidity
QFII
Quota granted: USD 74bio
RMB 22tr
USD 3tr
London Metal
Exchange (LME)
offers 3 commodity
futures in RMB:
- FX Spot
- FX Forward / Swap /
Long-Dated FX Forward
- FX options / exotics /
structured products
- USDCNY
Non-Deliverable
Forward
- USDCNH Deliverable
Spot / Forward
Offshore
Dim Sum
Bond Market
Formosa Bond
Market
Size:
RMB 359bio
Size:
RMB 45bio
What’s next?
Growth drivens:
QFII and RQFII are
going to merge
Shenzhen-Hong Kong
Stock Connect will be
available soon
Bond Connect to link
onshore and offshore
debt market
Financial reforms
Monetary policy
easing
Global indices
inclusion
Offshore
Offshore (H-shares &
Red Chips)
Hong Kong
Exchange
(HKEx)
Market cap:
RMB 11tr
USD 2tr
- London Aluminium
Mini Futures
- London Zinc Mini
Futures
- London Copper Mini
Futures
Source: Reuters, AsianInvestor, South China Morning Post
Source: Chinabond, SAFE, Wind, Bloomberg, SSE, SZSE, HKEx, London Metal Exchange, BNP Paribas, as of May 2015
All About RMB｜21
Offshore
China
Exchange
Bond Market
How can I access
China’s capital market?
Foreign investors need to apply for quotas before investing in Chinese markets. There are three
types of quotas currently available to different types of investors: QFII (Qualified Foreign
Institutional Investor), RQFII (RMB Qualified Foreign Institutional Investor), and Three Institutions
Quotas (Foreign Central Banks, RMB Clearing Banks in Hong Kong and Macau, Offshore RMB
Trade Settlement Banks, insurance companies and sovereign wealth funds).
Which quota for which market?
How can I access China’s capital market?
Each quota type provides a different channel to the Chinese securities market. While QFII was initially designed for access to
Chinese equities, the other quotas have been more organised around bond products. There is nevertheless more and more
convergence between RQFII and QFII to provide a fully-fledged offer covering bonds and equities. The exception is the three
institutions quota, which was designed to provide exclusive access to Chinese bonds for banks and central banks which
already have RMB liquidity offshore through deposits or cross currency swap lines.
Foreign Investors
Market Type
Trading System
Custodian Settlement
Regulator
Qualified Foreign
Institutional Investor (QFII)
Exchange markets
Shanghai / Shenzhen
Stock Exchange
CSDCC
CSRC
RMB Qualified Foreign
Institutional Investor
(RQFII)
Foreign Central Banks, RMB
Clearing Banks in HK and
Macau Offshore RMB Trade
Settlement Banks
* Subject to
relevant licence
CCDC
Interbank bond market
CFETS
PBoC, NDRC
and MoF
SHCH
Source: BNP Paribas
All About RMB｜22
Central banks
Three types of
Institutions
For Foreign Central
Banks, RMB Clearing
Restrictions Banks and Offshore
RMB Trade
Settlement Banks
Banks
QFII
Any offshore
investor
Insurance
companies
Foreign
funds/asset
managers
Securities firms
RQFII
For financial institutions in offshore
RMB centres: Hong Kong, Singapore,
U.K, France, Germany, South Korea,
Canada, Qatar, Australia,
Switzerland and Luxembourg
Shanghai-Hong Kong
Stock Connect
Southbound: All PRC
institutional investors;
individual investors having
≥ CNY 500,000 in securities
and cash
Northbound: All HK and
overseas institutional
investors
SH-HK Stock Connect is a
link between the stock
markets in Shanghai and
Hong Kong. Under the
programme, investors in
Hong Kong and Mainland
China can trade and settle
shares listed on the other
market (CSRC)
Definition
Three institutions
quota is the quota
for specially
approved institutions
by PBoC. Only access
granted is interbank
bond market (PBoC)
QFII stands for
Qualified Foreign
Institutional
Investor. Issued in
2002. It allows
foreign investors to
invest in domestic
securities market
(CSRC/SAFE)
Currency
CNY
USD
CNY
Number of
investors
Over 60 qualified
investors
268 financial
institutions (as at
04/2015)
121 financial
institutions (as at
04/2015)
Investors that satisfy
the requirements can
invest through the
connect
CNY 363.7bio
allocated out of
CNY 870bio total
quota
Northbound:
Total CNY 300bio,
CNY 13bio for daily trading
Southbound:
Total CNY 250bio,
CNY 10.5bio for daily trading
Estimated:
CNY 350bio
USD 73.6bio
allocated out of
USD 150bio total
quota
Fixed income
products in
interbank bond
market
Onshore equity,
warrant, bonds,
stock index futures
in exchange
market & security
funds, and fixed
income products in
interbank bond
market
Quota
Investment
Category
Source: BNP Paribas
RQFII stands for Renminbi
Qualified Foreign Institutional
Investor. The programme was
launched in December 2011 and
the original amount was CNY
20bio (CSRC/SAFE/PBoC)
Onshore equity,
warrant, bonds,
stock index futures
in exchange market
& security funds,
and fixed income
products in
interbank bond
market
CNY, HKD
Southbound:
H-shares included in the
Large cap index and Mid
cap index
Dual listed SSE A + SEHK H
shares
Northbound:
A-shares included in SSE
180 index and 380 index
Dual listed SSE A + SEHK H
shares
Several quota options are available in the offshore centres.
BNP Paribas can advise on the right process for you
All About RMB｜23
Sovereign funds
(For professional investor only)
QFII & RQFII application and approval process
Foreign Investor
Step 1
Entrust a domestic securities
company to handle its
domestic exchange securities
transaction activities
Step 2
Entrust a commercial bank as cash custodian to manage assets.
If foreign investor wants to invest in interbank bond market, it must
entrust a commercial bank that is qualified for both custodian and
clearing settlement (in this case, needs to apply to PBoC)
Step 3
Rejected
CSRC sends a written
notice to applicant
Approval based on opinion from SAFE (CSRC)
Application for QFII /
RQFII through custodian
(CSRC, SAFE)
Approved
CSRC issues a securities investment license
Step 4
Approved
Safe issues a Forex certificate(QFII) or a Registration certificate (RQFII)
Application for investment
quota through custodian (SAFE)
RQFII
Rejected SAFE sends a written notice to applicant
QFII
Step 5
Special RMB account (each type of investment requires an individual special RMB account)
Account Opening
(Custodian bank)
Forex Account (QFII only)
Exchange bond market
Exchange stock market
Interbank bond market
Institutions specially approved by PBoC
Foreign Central Banks
RMB Clearing Banks in HK and Macau
Step 1
Offshore RMB Trade Settlement Banks
Step 2
Application
to PBoC
Approved
PBoC issues a securities
investment licence and
approves investment quota
Foreign Central Banks can entrust PBoC directly as
settlement agency
Entrust a qualified agency in interbank bond market
(46 qualified banks)
Rejected
PBoC sends a written notice to applicant
Open Special RMB Account
Step 3
Step 4
CCDC
Type C Account Special RMB account
SHCH
Indirect Settlement Member Account
CFETS
CFETS Settlement Account
BNP Paribas Group can assist you in your application for quota, timeline for approval varies
All About RMB｜24
Bond Investment
Source: BNP Paribas
BNP Paribas helps you get a quota
BNP Paribas Securities Services
What is important to you
as an asset manager?
What is important to you
as an asset owner?
Capture distribution opportunities and broaden footprint.
Protect your investments.
Build a scalable service model from distribution support
Evaluate your portfolios.
to back office operation.
Monitor your risks.
Reduce risk and cost.
Enhance your returns.
Navigate the changing regulatory environment.
Implement efficient reporting.
Covering all your needs to benefit from QFII and RQFII schemes
Core Asset Servicing
Hong Kong and Singapore Trustee
Investment Accounting & Fund Administration
Local Transfer Agency
End-to-end service model for setting up RQFII
and QFII funds.
Enhance distribution reach via BNP Paribas SIF
/QIF.
Global Custody
Investment Compliance
Full RMB Servicing
Open Architecture with Local
Custodians in China
Dealing, Clearing and
Custody Services
360 solution for asset managers
Servicing in your time zone and your language.
Client’s choice of China onshore custodian.
Value Added Services
Global and Local Clearing
and Settlement
Dealing Services
Derivatives Clearing
Fund Dealing Services
Middle Office Outsourcing
Investment Reporting and Performance
Cash Management and Foreign Exchange
Collateral Management
Security Lending and Borrowing
360 solution for asset owners
Robust and flexible QFII suite of services with
Asian competitive edge for asset owners.
Un-matched offering in terms of asset
segregation and protection.
High touch, consultative service approach.
Quota advisory service
BNP Paribas Investment Partners
Ever since the Chinese regulators increased the pace of granting (R)QFII licences and quotas, there is increasing demand for
Investment advisory services for China onshore investments.
The relatively small size of the majority of newly allotted quotas, combined with the complexity of the onshore market,
leads the new quota holders towards partnering with an experienced manager to (co) manage the QFII/RQFII portfolio.
BNP Paribas Investment Partners’ joint venture (海富通基金) can leverage on almost 10 years of QFII management experience
when servicing these new investors.
The advisory services differ in level of discretion depending on the mandate. It varies from advice on stock picking to
handling a day-to-day portfolio.
All About RMB｜25
BNP Paribas quota advisory services
Servicing in your time zone and your language.
BNP Paribas solutions
Direct market access,
what options do I have?
Key points:
BNP Paribas offers clients a wide range of in-house services and products to take advantage of the
Stock Connect programme for those interested in Northbound trades. They include trade ideas,
brokerage execution, synthetic security products, and clearing and custody.
Investors can access the RMB securities markets through synthetic solutions.
BNP Paribas (China) Ltd. can help you with onshore bond trading.
Global Markets
The Shanghai and Hong Kong stock exchanges agreed to launch the Shanghai-Hong Kong Stock Connect on 10th April 2014.
Stock Connect is an innovative mutual market access scheme that represents a milestone for China to internationalise the RMB
and integrate its capital markets with the rest of the world. The programme went live in November 2014.
Mainland
ChinaClear participants
investors
Eligible stocks
in the A-shares
Order
routing
SEHK subsidiary
SEHK subsidiary
Eligible stocks
in the H-shares
HK & overseas
investors
EPs/CPS
SEHK
Order
routing
Northbound
Clearing link
Mainland
China
SSE members/
SSE
Clearing link
Southbound*
ChinaClear
Hong Kong
HKSCC
Illustrative purpose only
Source: HKEx, Shanghai-Hong Kong Stock Connect Business Model, May 2014
http://www.hkex.com.hk/eng/market/sec_tradinfra/chinaconnect/chinaconnect.htm
*Note: Only eligible Mainland investors can participate in Southbound trading
Trade in China through Hong Kong:
- Investors need to open an account with a broker/EP to trade SSE
Securities
- Investors can have several brokers/EPs
- For secondary market trading only
SSE: Shanghai Stock Exchange
SEHK: The Stock Exchange of Hong Kong
HKSCC: Hong Kong Securities Clearing
Company Limited
- Pre-trade position checks on sell orders
EPs: Exchange Participant
- Free of Payment (FOP) settlement, stock on T-day, cash on T+1
CPs: HKSCC’s Clearing Participant
- Not fungible with QFII
All About RMB｜26
Our solution: one initiative, three models
Enhanced pre-trade
checking control model
BNP Paribas
Intergrated model
Standard offer
Step 1: Trade with any
broker;
Step 1: Trade with any broker;
Step 2: Move the stock to
the broker on T-1 (or on T
before 7:45am);
Step 3: The broker settles
the trade with CCASS.
Step 2: All authorized brokers
have a view on all Chinese
eligible stocks so there is no
need to move the stock prior
T-day;
Asset management
segregated account
1
1
2
External broker
segregated account
Step 3: The broker settles the
2
Partner broker
custody and clearing
with BNP Paribas
3
1
2 trade on the client’s CCASS SPSA.
External broker
segregated account
3
3
Central Clearing and Settlement System (CCASS)
Special segregated
sub-account (SPSA)
BNP Paribas
account
Broker account
BNP Paribas Intergrated model
Step 1: Trade with a
partner broker
Step 2: The broker has a view on all Chinese eligible
stocks so there is no need to move the stock on T-1
Step 3: The broker settles
the trade with CCASS
Standard offer - Custodial with other clearing participants
Client A’s Custodian
Hong Kong
Stock Exchange
Execution Broker
House assets
Deliver
stocks FOP
Investors’
assets
Position
Pre-trade
checking
snapshot
Process flow for sell orders
Securities are required to transfer from custodian to execution broker latest by 7:45am on T-day.
Additional Central Clearing and Settlement System (CCASS) fees for external settlement instruction (SI).
Additional process to monitor the trade settlement on T+1.
Only Free of Payment (FOP) settlement instruction is allowed, the cash component is missing (Credit Risk Impact).
The overall sellable position under the execution broker will include holdings of client A under segregated account.
All About RMB｜27
Equity Market Kong Stock Connect explained
Shanghai-Hong
Client A’s
assets
BNP Paribas integrated model
Hong Kong
Stock Exchange
BNP Paribas Securities Asia
House assets
Investors’ assets
Pre-trade
checking
Position
snapshot
Client A
Client A’s assets
NO need to anticipate the sell on T-1 or before 7:45am on T-day.
BNP Paribas offers Deliver versus Payment (DVP) - like settlement.
NO stock pre-delivery action to be taken with BNP Paribas Securities Asia by client A.
The overall sellable position under BNP Securities Asia will include holdings of client A, since BNP Securities Services is
providing custodian service to both client A and BNP Paribas Securities Asia.
Enhanced pre-trade checking control model
Central Clearing and Settlement System
(CCASS)
China Stock Connect System
(Positions per Investor ID)
Sell trade with
investor ID is received
Brokers (EP)
Clearing member
accounts
Position
Does it have
sufficient position?
Shanghai-Hong
Equity
Market Kong Stock Connect explained
snapshot
Investors
Custodians
SPSA accounts
+Investor ID
No
Yes
Rejected
Order routed to
Shanghai Stock
Exchange
No need to pre-deliver shares to executing brokers before selling.
Investor IDs are linked to custodians, meaning an
Investors should request their custodians to open a special
investor using several custodians will have several
segregated sub-account (SPSA) and will be assigned investor IDs
investor IDs, and will have one ID per segregated
(one per segregated sub-account).
sub-account with its custodian.
Investors must designate eligible brokers for each ID and fill in a
The Exchange will allow DVP settlement
separate SPSA form for each ID and for each designated broker.
All About RMB｜28
1
instructions.2
Comparison between three models
Standard offer
Pre-trade
Post-trade
Enhanced pre-trading checking
control model
Securities are required to
transfer from custodian
to execution broker latest
by 7:45am on T day
- No need to pre-deliver shares to
executing brokers before selling
- Only Free of Payment
(FOP) SI is allowed
- The Exchange will allow DVP 1
settlement instructions 2
- Additional process to
monitor the trade
settlement on T+1
- Synthetic DVP offer from broker
Advantages
BNP Paribas’ integrated model
No need to pre-deliver shares to
executing brokers before selling
- Investors should request their
custodians to open an SPSA account
and will be assigned Investor IDs
BNP Paribas offers DVP-like
settlement
- Eliminates the market requirement
to pre-deliver shares to executing
brokers before selling
- Minimised information leakage
- More convenient for investors to
trade via multiple brokers
- Effective operating model
- Allows investors to maintain their
custody relationships
- Fewer counterparties, potentially
reducing the risk
- Potentially more cost efficient
compared to the HKEx - Enhanced
Pre-Trade checking control model
- This model has been validated by
some local and foreign regulators 3
- Disclosure of trading ideas
- Credit risk due to Free of
Payment (FOP)
- Operational risk to settle
within tight timeframe
- Inconvenient for investors
to trade via multiple
brokers
- Failure to settle a sale transaction
will result in certain transactions in the
same stock being blocked for settlement
- Initial setup could be heavy for
investors having multiple custodians
and multiple broker relationships.
Continued maintenance of an inventory
of IDs is necessary
- DVP-Like settlement between BNP
Paribas Securities Asia and the
client
- Assets movement reflected in BNP
Paribas Securities Services books
(compared to a model with an
external custodian or broker)
- Increase in overall costs: All settlements to and from the SPSA account
will incur Central Securities Depository
(CSD) costs
(1) Payment of DVP SI Settlement after morning SI Batch is confirmed on T+1 morning (2) On-exchange settlement does not change with settlement of the securities on T-day and
settlement of the cash on T+1 (3) Such as Luxembourg Fund Regulator:
http://www.bloomberg.com/news/articles/2014-11-28/luxembourg-fund-gets-first-approval-for-shanghai-hong-kong-link
Stock Connect synthetic access*
Direct access to Stock Connect will likely be limited in scope in the 1st phase due to intensive
inventory process:
The operational process for position transfer prior to sales is heavy and risk of Free of Payment (FOP).
Difficult access to CNH funding, and alternatively, onerous cost of holding long CNH positions ahead of investment.
All About RMB｜29
Challenges
Features of trading synthetics:
Access A-shares exposure via BNP Paribas Stock Connect setup
Advantages
- Cash settlement only;
- Position transfers are not required;
- Ability to settle in other currencies than CNH (avoid CNH funding issues);
- Cash pre-payment is not required.
- Leverage on BNP Paribas inventory;
- Obligation to monitor the selling at BNP Paribas level;
- Benefit from BNP Paribas’ experience in QFII.
P-notes / Certificate
Trade both in exchange and OTC market.
Fully funded.
An established solution directly applicable to
Stock Connect.
Benefit from strong BNP Paribas credit rating.
Equity swaps / Portfolio swaps
Available in the OTC market and can be leveraged.
Counterparty exposure limited by daily collateral
movements.
Cross margining with other positions and collateral
optimisation through BNP Paribas Prime Services.
Direct Market Access (DMA) Swaps shall be available.
* A single foreign investor cannot have more than 10% holding in a company
RMB warrant
BNP Paribas launched the first RMB-denominated warrant in Hong Kong with the ChinaAMC CSI 300 Index ETF as the
underlying asset, a move that helps enrich the offshore yuan products and further promotes the RMB internationalisation.
Five characteristics of BNP Paribas RMB warrant:
Leveraged
As the liquidity of RMB improves over the years, demand for RMB-denominated products also increases gradually. BNP
Paribas can provide leveraged RMB warrants for investors to gain magnified exposure from the underlying asset.
Low investment outlay required
Despite the increasing demand for RMB-denominated investment products, leveraged RMB products were limited to OTC
products such as swaps before RMB warrants were introduced to the market by BNP Paribas. These OTC products are
only offered to professional investors and substantial initial investment is usually required.
Denominated, traded and settled in RMB
BNP Paribas’ RMB warrants are denominated, traded and settled in RMB – this means that investors can buy RMB
warrants by paying RMB, and if investors hold the RMB warrants until maturity, any cash settlement values will be
payable in RMB as well.
Easy to execute
Same as HKD-denominated warrants, RMB warrants can be traded using ordinary Hong Kong stock accounts, as long as
the executing broker can deal in and clear transactions in RMB (Depending on individual brokers’ requirements, investors
may need to open and maintain an RMB account with the broker first before dealing in RMB warrants) Trading
procedures and associated risks are similar as well except RMB warrants are denominated, traded and settled in RMB.
RMB warrant
Listed on Hong Kong Exchange
Listed on the Hong Kong exchange, BNP Paribas’ RMB warrants offer high transparency to investors. RMB warrants have
dedicated liquidity providers, are stamp-duty free and cash settled, just like ordinary derivative warrants.
All About RMB｜30
BNP Paribas Global Markets provides a wealth of offshore RMB equity products for investors.
From listed warrants to structured derivative instruments
BNP Paribas Global Markets offers:
Award winning 1 listed warrants in RMB
Equity derivatives products leveraging on our dedicated research and strategy teams’ capacity
Liquidity for QFII ETFs and A top 3 2 market maker for iShares FTSE A50 China QFII ETF (2823.HK)
Liquidity for RQFII ETFs
1 Source:
2 *Based
2014 RMB Business Outstanding Award by Metro Broadcast and Wen Wei Po
on YTD market share. Source: Bloomberg , 25th March 2015
How do QFII ETFs and RQFII ETFs work?
QFII ETFs
QFII ETFs can either use the fund manager’s own QFII quota to buy the A-shares, or (more commonly) access the
A-shares market via A-shares linked market access products (MAP) issued by 3rd parties
These ETFs are mostly listed in Hong Kong
Indirect access to A-shares market
via a 3rd party MAP issuer
Fund manager accesses A-shares through MAP
Investor
QFII ETFs
Direct access to A-shares market
Fund manager uses own QFII quota
RQFII ETFs
The equity RQFII ETFs Asset Under Management (AUM) has grown to $7.5bn across 15 ETFs* (see below list)
These ETFs are all listed in Hong Kong in HKD & CNH
*Source: Bloomberg, data as at 25th March 2015
Name
RQFII ETFs
RQFII ETFs
Benchmark
CSOP FTSE CHINA A50 ETF
FTSE A50
ChinaAMC CSI 300 IDX ETF
CSI300
ChinaAMC CES China A80 Index ETF
CES China A80
E Fund CSI100 A share ETF
CSI100
E Fund CES China 120 Index ETF
CES China 120
Harvest MSCI China A IDX
MSCI China A
Harvest MSCI China A 50 Index ETF
MSCI China A 50
A Shares market
Currency
BBG code
HKD
2822 HK
CNH
82822 HK
HKD
3188 HK
CNH
HKD
83188 HK
3180 HK
CNH
83180 HK
HKD
3100 HK
CNH
83100 HK
HKD
3120 HK
CNH
83120 HK
HKD
3118 HK
CNH
83118 HK
HKD
3136 HK
CNH
83136 HK
Source: Bloomberg, BNP Paribas, as of March 2015
All About RMB｜31
Investor
Trading, bond custodian & clearing with BNP Paribas (China) Ltd.
Global Markets
At BNP Paribas (China) Ltd, our unique credit and rates platform allows maximum access to bond research and trade ideas. We
have the right experience, size and portfolio to match international standards in quality of service, while interfacing seamlessly
with any Chinese underwriter or dealer.
As a qualified settlement bank, BNP Paribas (China) Ltd. is eligible to perform settlement agent services for foreign institutional
investors (Type C accounts) who are interested in applying for interbank bond trading.
BNP Paribas (China) Ltd. can assist you in document preparation and checking to satisfy PBoC’s requirements.
We can also open the RMB special account and other required accounts (CFETS account for bond trading, bond custodian /
clearing account at CCDC, SHCH) on behalf of our clients.
Conduct both direct trading and settlement with BNP Paribas (China) Ltd.:
- Normal price quotes will be used and directly executed with the client.
Using BNP Paribas (China) Ltd. solely as settlement agent:
- Client sends a trade instruction form with all trade details. BNP Paribas (China) Ltd. executes the trade on CFETs on behalf of
the client.
3. BNP Paribas (China)
Ltd. confirms and inputs
trade details into CFETS
1. Trade execution
between BNP Paribas
(China) Ltd. and client
4. Once CFETS ticket is generated
and matched, settlement bank
will conduct settlement for
client
Offshore
clients
Qualified settlement bank
CFETS
CCDC / SHCG
3. Settlement bank
confirms trade in CFETS
on behalf of clients
2. Client sends trade
details to settlement
bank
Trading,
bond custodian & clearing with BNP Paribas (China) Ltd.
Equity
Market
Bond custodian and clearing
Offshore client
entrusts its onshore
settlement agency to
open/operate accounts
on its behalf
Type C Account
Indirect settlement
member account
CCDC
Types of Bonds Cleared:
Treasury bonds, local government bonds, PBoC bills, policy
bank financial bonds, government-supported corporate
bonds, MTNs, financial bonds, corporate bonds, ABS etc.
SHCH
Types of Bonds Cleared:
Commercial Papers, Medium Term Notes (issued since 17
Jun 2013), Private Placement, Negotiable Certificate Of
Deposit , etc.
Onshore bond trading capacity
Wide-ranging Rates Bonds Inventory
MoF Bonds (CGB)
PBoC Bonds
Policy Bank Bond
China Development Bank
The Export-Import Bank of China
Agricultural Development Bank of China
We manage over 80 tradable credit names, one of the strongest foreign bank credit bond trading desks in China
The Top 30 corporate bond issues comprised half of all
outstanding bonds
Dominated by State-owned companies
(26 out of Top 30 issuers)
Most liquid credit bonds
China National
Petroleum Corporation
All About RMB｜32
China Three
Gorges
State Grid
Corporation of China
China Railway Corporation
(former Ministry of Railway)
Shenhua
Group
China’s most liquid credit bonds in inventory
Top 30 issuers of corporate bonds in the People’s Republic of China (data as at December 2014)
LCY* Bonds
(US$ billion)
State-owned
Listed
Company
Type of industry
1058.50
976.0
Yes
No
Transportation
2. State Grid Corporation of China
435.5
415.5
Yes
No
Public Utilities
3. China National Petroleum
370.0
410.0
Yes
No
Energy
4. Bank of China
298.8
183.4
Yes
Yes
Banking
5. Industrial and Commercial Bank of China
296.5
155.3
Yes
Yes
Banking
6. Agricultural Bank of China
229.0
138.0
Yes
Yes
Banking
7. Industral Bank
206.3
134.5
No
Yes
Banking
8. China Construction Bank
199.5
117.6
Yes
Yes
Banking
9. Shanghai Pudong Development Bank
167.0
109.0
No
Yes
Banking
10. China Minsheng Bank
136.2
102.4
No
Yes
Banking
11. Bank of Communications
126.8
94.0
No
Yes
Banking
12. China Citic Bank
121.9
91.2
No
Yes
Banking
13. China Power Investment
116.9
91.0
Yes
No
Public Utilities
14. Central Huijin Investment
109.0
87.5
Yes
No
Diversified Financial
15. China Merchants Bank
105.3
77.1
No
Yes
Banking
16. China Everbright Bank
101.9
76.1
Yes
Yes
Banking
17. Shenhua Group
101.5
73.4
Yes
No
Energy
18. Petrochina
91.0
68.0
Yes
Yes
Energy
19. China Southern Power Grid
81.5
66.5
Yes
No
Public Utilities
20. China Petroleum & Chemical
79.5
65.5
Yes
Yes
Energy
21. China Guodian
77.9
65.5
Yes
No
Public Utilities
22. China Datang
72.7
65.0
Yes
No
Energy
23. Tianjin Infrastructure Investment Group
72.1
71.5
62.2
54.9
Yes
Yes
No
No
Capital Goods
Diversified Financial
25. China Three Gorges Project
69.5
53.5
Yes
No
Public Utilities
26. China Life
68.0
53.5
Yes
Yes
Insurance
27. Shaanxi Coal and Chemical Industry Group
62.0
51.4
No
Yes
Energy
28. Bank of Beijing
60.6
50.1
No
Yes
Banking
29. China Huaneng Group
59.1
46.5
Yes
No
Public Utilities
30. Shanghai Pudong Development Bank
51.9
46.0
No
Yes
Banking
Total Top 30 LCY Corporate Issuers
5097.97
821.52
Total LCY Corporate Bonds
11528.67
1857.81
44.2%
44.2%
Issuers
1. China Railway Corporation
24. State-Owned Capital Operation and
Management Center of Beijing
Top 30 as % of Total LCY Corporate Bonds
LCY = Local currency
Notes: 1. Data as at end-December 2014.
2. State-owned firms are defined as those in which the government has more than a 50% ownership stake.
Source: AsianBondsOnline calculations based on Bloomberg data.
BNP Paribas is a market leader in RMB onshore bonds dealing
ChinaBond.com.cn
中國債券信息網
China Bond Trading Volume Ranking
2011 2012
2013 2014
2015
YTD
BNP Paribas among foreign banks
3
2
5
5
3
BNP Paribas among all types of dealers
16
15
18
25
26
Offshore products in RMB are fast developing
In the RMB offshore centres, new products have appeared to
answer the needs of local and international investors. They range
from CNH deposit solutions, CNH bonds ("Dim Sum", "Formosa"),
RMB Real Estate Investment Trusts, Warrants to some Equity
tracker funds. We expect new products to be developed soon in all
offshore RMB centres in the form of certificates, stock listings and
Since 2010, BNP Paribas has
systematically been ranked as a
top 3 bookrunner in the CNH bond
market.
Source: Reuters
more asset management solutions.
All About RMB｜33
Trading, bond custodian & clearing with BNP Paribas (China) Ltd.
Outstanding Amont
LCY* Bonds
(CNY billion)
BNP Paribas solutions
What funds and
alternative
investments can
BNP Paribas provide?
BNP Paribas Investment Partners offer funds solutions to international investorsfor onshore
and offshore equities and fixed income markets. We managed:
More than USD 3.4 bn under QFII;
USD 1.7bn for offshore Chinese assets (equities and fixed income).
Active or passive management (CSI 300 Index Fund) solutions available.
BNP Paribas Investment Partners has been a pioneer in offering clients access to China’s onshore markets since it received its QFII
licence. The long standing experience and performance track record have enabled us to grow into one of the largest QFII managers
in Hong Kong with USD 3.4 billion in assets under management. Key to our success has been our local presence and intimate
understanding of the local market through our Chinese joint venture, HFT Investment Management (“HFT”), which was established
What funds and alternative investments can BNP Paribas provide?
in 2003.
With ambition to be a leader in RMB management, we successfully obtained a Hong Kong RQFII licence in 2014. Contributing to the
further internationalisation of the RMB, BNP Paribas Investment Partners was also the first to obtain an RQFII licence in Paris,
making it one of the first financial institutions in Europe to be able to provide its clients with access to China through RQFII.
Various funds with different levels of risk and return help you invest in China’s equity and bond markets.
Overview of equity funds’ return
Overview of fixed income funds’ return
Return
Return
1
2
3
4
5
Flexifund China A Small Caps
1
Flexi III Equity China Environmental
Flexifund Equity China A
2
Cayman Investment Funds SPC
China RMB Bond Fund
Flexi I CSI 300 Index Fund
3
Parvest Equity China
Risk
All About RMB｜34
Flexifund Bond RMB
Flexifund Short Term RMB
Duration
Overview of equity funds’ underlying assets
Greater China
(exclude A-shares)
China A-shares
5
2
Overview of fixed income funds’ underlying assets
Onshore bonds
2
3
1
Flexi I CSI 300 Index Fund
4
Offshore bonds
Cayman Investment Funds SPC
China RMB Bond Fund
Flexifund Bond RMB
1
3
Active management solutions - Flagship funds solution
1
Risk
HIGH RISK
Onshore small caps in general offer more attractive returns than large caps
but with higher volatility.
On-the-ground investment resource with more than 60 investment
professional based in Shanghai.
Return
A solid bottom up investment process.
Target at quality growth companies with ability to generate stable long term
growth.
Liquidity
One of the largest A-shares teams for international investors: USD 1.7 billion*.
Greater China
(exclude A-shares)
China A-shares
Market access
75%
* Data as at December 2014
Flexi III Equity Greater China Environmental
China is recognising the need to address pollution and
environmently-friendly infrastructure.
Risk
MEDIUM RISK
Return
Opportunities in environmental-related industries with cheap valuation.
Flexibility to invest both onshore and offshore.
5-year track record A and H-shares experience.
Lead portfolio manager has extensive experience in the market.
China A-shares
Greater China
(exclude A-shares)
Liquidity
Market access
45%
All About RMB｜35
Active
Equitymanagement
Market
solutions
2
Risk
3
HIGH RISK
Launched in 2004, one of the first China onshore A-shares funds in the
market.
On-the-ground investment resource with more than 60 investment
professionals based in Shanghai.
Return
A solid bottom up investment process.
Targeting at quality growth companies with ability to generate stable long
term growth.
Liquidity
One of the largest A-shares teams for international investors: USD 1.7 billion*.
Greater China
(exclude A-shares)
China A-shares
Market access
75%
* Data as at December 2014
Risk
5
HIGH RISK
All China strategy including Hong Kong, onshore China , Taiwan stocks and
P-notes.
Return
5-year track record A and H-shares experience.
High conviction strategy based on three factors driving returns.
Stable, experienced (12 years average) on-the-ground team.
Leverage Hong Kong / global BNP Paribas Investment Partners
infrastructure (risk management, quantitative analysis / screening).
Greater China
(exclude A-shares)
China A-shares
1
Liquidity
Market access
100%
Risk
Flexifund Bond RMB
MEDIUM RISK
One of the first RMB bond strategies available for international investors.
High quality exposure to onshore China government and corporate bonds.
Return
The strategy yields 4.32% in RMB terms for an average life of 3.14 years*.
Active
management
solutions
Equity
Market
Solid fixed income investment process, investing with an objective of
stability, liquidity and profitability.
One of the largest teams for international investors: USD 1.5 billion**.
Onshore bond
Flexifund Bond RMB
* Data as at February 2015 ** Data as at December 2014
All About RMB｜36
Offshore bond
Liquidity
Market access
99%
2
Risk
Cayman Investment Funds SPC China RMB Bond
Fund
MEDIUM RISK
Yield Target : 4.5% to 5% in RMB terms.
Return
Benefit from onshore plus offshore diversification (maximum 40% invested
through QFII Bond RMB strategy).
Rich experience: more than 15 years of managing Chinese fixed income
offerings.
A solid 3-year track record.
Liquidity
Solid investment process, with proprietary credit scoring model (no defaults
in our portfolios since 2002).
Onshore bond
Market access
Offshore bond
40%
Cayman Investment Funds SPC China RMB Bond Fund
3
Risk
MEDIUM - LOW RISK
One of the first RMB bond strategies available for international investors.
Short term exposure to onshore China government bonds.
The strategy yields 3.32% in RMB terms for an average life of 104 days*.
Return
Solid fixed income investment process, investing with an objective of
stability, liquidity and profitability.
Liquidity
One of the largest teams for international investors: USD 1.5 billion*.
Onshore bond
Offshore bond
Market access
99%
* Data as at February 2015 ** Data as at December 2014
Note: The risk, return and liquidity indicators are not official and are based on an internal assessment of the relative risk, return and liquidity of each products
mentioned relative to the other products included. The Market access indicator, indicates the coverage each product has of the onshore and offshore sub-categories
within the asset class
Active management solutions - Dedicated active management solutions
BNP Paribas Investment Partners has more than 10 years’ investment experience in onshore assets, and highly qualifies
specialised teams who can provide customer-tailored active management solutions for different types of clients: private
Key advantages of
dedicated solutions
Segregation of
assets
Local teams with
international
qualifications
10 years+
investment
Dedicated
experience in
reporting
onshore assets
Customised
investment
solutions
All About RMB｜37
Active
Equitymanagement
Market
solutions
banks, investment banks, pension funds, official institutions, insurance companies and endowments.
BNP Paribas
Investment Partners
Passive management solutions
Combining excellence in index management with local market expertise.
Europe
40 indexed funds
and 37 ETFs
Shanghai
Long term experience
Expertise in index
on index management
management
Shenzhen
Hong Kong
AUM EUR 43 billion
CSI 300 Index Strategy
Collaboration
Asia (Hong Kong)
In time zone trade
execution
China A-shares AUM
EUR 1.2 billion
Expertise in China market
Asia total AUM EUR 46 billion
Source: BNP Paribas Investment Partners, data as of March 2015
Risk
4
BNP Paribas Flexi I CSI 300 Index Fund*
Index fund: No premium / discount; no bid / offer spread compared
to ETFs.
HIGH RISK
Return
Full physical replication with attractive management fee and total
expense ratio.
Passive
Equity Market
management solutions
Combining solid experience of THEAM which is the specialist asset
manager for protected, indexed and model driven investments and
BNP Paribas Investment Partner in A-shares market.
China A-shares
Greater China
(exclude A-shares)
Flexi i CSi 300 index Fund
Liquidity
Market access
75%
*The BNP Paribas Flexi I CSI 300 Index Fund is scheduled to be launched on 15th of June 2015
Note: The risk, return and liquidity indicators are not official and are based on an internal assessment of the relative risk, return and liquidity of each products
mentioned relative to the other products included. The Market access indicator, indicates the coverage each product has of the onshore and offshore sub-categories
within the asset class
All About RMB｜38
Appendix
Currency Abbreviations
Abbreviation
Full Name
Definition
CNH
Offshore Chinese Yuan in HK
An acronym for offshore deliverable Chinese Yuan traded outside China; Trade
settlement process in Hong Kong
CNS
Offshore Chinese Yuan in Singapore
settlement process in Singapore
CNT
Offshore Chinese Yuan in Taiwan
settlement process in Taiwan
CNY
Chinese Yuan
CNY is the International Organisation for Standardisation code for the currency
RMB
Renminbi 人民幣
“Renminbi” is the Chinese pronunciation
COFER
Composition of Official Foreign
Exchange Reserves
An IMF qualification showing proportion on the currency composition of official foreign
exchange reserves
SDR
Special Drawing Right
An IMF currency used for investment and financing
Investors Abbreviations
Abbreviation
Full Name
FIE
Foreign Invested Enterprise
JV
Joint Venture
QFII
Qualified Foreign Institutional Investor
RQFII
RMB Qualified Foreign Institutional Investor
Foreign central banks, RMB clearing banks in HK and Macau, Offshore RMB trade settlement banks,
insurance
companies
and sovereign wealth funds
Structured
solutions
QDII
Qualified Domestic Institutional Investor
through quotas
Abbreviation
Full Name
Definition
Implications for Investors
CBRC
China Banking Regulatory Commission
Regulates China’s banking institutions
Regulates FIE (Foreign Invested Enterprise)
RMB fund raising approval
CSRC
China Securities Regulatory
Commission
Regulates China’s securities markets
In charge of qualification approval of QFII
and RQFII
CSDCC
China Securities Depository and
Clearing Corporation
Manages securities investor accounts
Provides custodian/settlement services for
QFII investments in exchange bond market
CCDC
China Central Depository and
Clearing Corporation
Centralised depository and settlement for
the interbank bond market. Manages type C
Special RMB account for bond investment
In charge of bond transaction settlement
for interbank bond market
MOF
Ministry of Finance
National agency which administers
macroeconomic policies and the national
annual budget. It also handles fiscal policy,
economic regulations and government
expenditure for the state
Regulates capital investment of RQFII and
MOFCOM
Ministry of Commerce
National executive agency responsible for
formulating policy on foreign trade, export
and import regulations, foreign direct
investments negotiating trade agreement,
etc
Manages FDI (Foreign Direct Investment)
approval in large volume
In charge of approval for FIE (Foreign
Invested Enterprise) RMB fund raising
through issuance of CNH bonds and
shareholder loans
All About RMB｜39
Glossary of
& Terminology
useful terms
Onshore RMB Regulators
Onshore RMB Regulators
Abbreviation
Full Name
Definition
Implications for Investors
PBoC
People’s Bank of China
Chinese central bank which controls
monetary policy and regulates financial
institutions in China
In charge of RMB internationalisation project
In charge of qualification approval of
foreign central banks, RMB clearing banks
in HK and Macau and offshore RMB trade
settlement banks (Three Types of
Organizations)
Regulates capital investment of RQFII and
Three Types of Institutions regulates FIE
(Foreign Invested Enterprise) RMB fund
raising approval
SAFE
State Administration of
Foreign Exchange
Regulates foreign exchange administration
system and manages the country’s foreign
exchange market
In charge of quota approval for QFII
Regulates FIE (Foreign Invested Enterprise)
RMB fund raising approval
Regulates FIE FX payments and guarantee
NAFMII
National Association of Financial
Market Institutional Investors
A self-regulatory organization which
regulates China’s over-the-counter market
under PBoC supervision
In charge of registration for FIE (Foreign
Invested Enterprise) RMB fund raising
through issuance of CNY bonds
NDRC
National Development and
Reform Commission
Studies and formulates policies for economic
and social development, maintains the
balance of economic development, and guides
the restructuring of China's economic system
In charge of project approval for large
volume FDI (Foreign Direct Investment)
and regulates capital investment of RQFII
and Three Types of Institutions
SHCH
Shanghai Clearing House
Provides centralized clearing services for
spot and derivatives transactions in RMB
and foreign currencies as well as RMB
cross-border transactions
In charge of clearing and settlement
interbank bond market
Manages registration of indirect settlement
member accounts for investors
CFETS
China Foreign Exchange
Trade System
A sub-institution of People's Bank of China
that supervises interbank lending, bond and
FX markets
Manages investors' trading account
registration and interbank bond and
FX transactions
Onshore Bond Issuing Entities
Abbreviation
Full Name
Definition
CDB
China Development Bank
A financial institution in China led by a cabinet minister level Governor, under
the direct jurisdiction of the State Council. It is one of the three policy banks in
China. Its primary responsibility is raising funding for large infrastructure
projects. Regulated by People's Bank of China (PBoC) and China Banking
Regulatory Commission (CBRC).
ADBC
Agricultural Development Bank of China
A state-owned agricultural policy bank under the direct administration of the
State Council. Its main task is raising funds for agricultural policy businesses.
ADBC's business is under the regulation and supervision of the People's Bank of
China (PBoC) and China Banking Regulatory Commission (CBRC).
EXIM Bank
Export - Import Bank of China
One of three policy banks in China chartered to implement state policies in
industry, foreign trade, diplomacy, economy, and provide policy financial
support so as to promote the export of Chinese products and services.
Regulated by People's Bank of China (PBoC) and China Banking Regulatory
Commission (CBRC).
Offshore RMB Actors and Systems
Abbreviation
Full Name
Definition
RTGS
Real Time Gross Settlement
Funds transfer systems where transfer of money or securities takes place from
one bank to another on a "real time" and on "gross" basis
CNAPS
China National Advanced Payment System
China’s current payment system for nationwide interbank system and for
cross border RMB payment clearing
CIPS
Cross border Interbank Payment System
China’s future international payment system
All About RMB｜40
Contact us
RMB Competence Centre
BNP Paribas
Add 63/F Two International Finance Centre
8 Finance Street, Central, Hong Kong
Email rmbsolutions@asia.bnpparibas.com
BNP Paribas Investment Partners
TF Cheng
Head of Greater China Business
BNP Paribas Investment Partners Asia Limited
Add 30/F, Three Exchange Square,
8 Connaught Place, Central, Hong Kong
Tel
+ 852 2533 0008
Email tanfeng.cheng@asia.bnpparibas.com
Emmanuelle Wilbrod
Investment Specialist – Asian equities
BNP Paribas
Add 30/F, Three Exchange Square,
8 Connaught Place, Central, Hong Kong
Tel
+ 852 2533 2208
Email emmanuelle.wilbrod@asia.bnpparibas.com
Disclaimer
Global Markets
Hugo Leung
Head of Global Markets Hong Kong
BNP Paribas
Add 63/F Two International Finance Centre
8 Finance Street, Central, Hong Kong
Tel
+ 852 2825 1826
Email hugo.leung@asia.bnpparibas.com
Angely Yip
Sales Director - Asset Owners and Asset Managers- North Asia
BNP Paribas
Add 21/F, Pccw Tower Taikoo Place, 979 King’s Road
Quarry Bay, Hong Kong
Tel
+ 852 3197 3548
Email angely.yip@asia.bnpparibas.com
Connie Mak
Head of Relationship Management - North Asia
BNP Paribas
Add 21/F, Pccw Tower Taikoo Place, 979 King’s Road
Quarry Bay, Hong Kong
Tel
+ 852 3197 3376
Email connie.mak@asia.bnpparibas.com
This document is CONFIDENTIAL AND FOR DISCUSSION PURPOSES ONLY and does not constitute an offer or a solicitation to engage in any trading strategy, to purchase or sell any financial instruments, or to
enter into any transactions, nor shall it form the basis of or be relied upon in connection with any contract or commitment whatsoever. Given its general nature, the information included in this document does
not contain all the elements that may be relevant for an investor to make an informed decision in relation to any strategies, financial products or transactions discussed herein. In providing this document, BNP
Paribas gives no financial, legal, tax or any other type of advice to, nor has any fiduciary duties towards, recipients. Certain strategies or potential transactions discussed in this document may involve the use of
derivatives, which may be complex in nature and may give rise to substantial risks, including the risk of partial or total loss of any investment. The information contained in this document has been obtained
from sources believed to be reliable, but BNP Paribas makes no representation, express or implied, that such information, or any opinions based thereon and contained in this document, are accurate or
complete. BNP Paribas is further under no obligation to update or keep current the information contained in this document. All figures and examples, whether historical, backtested or simulated (i.e. merely
hypothetical), are provided by way of illustration only. Actual historical or backtested past performance and forecasts are not reliable indicators of future performance. Any proposed investment in a security
cannot be fully assessed without full knowledge and understanding of the relevant Final Terms and the Terms and Conditions contained in the relevant prospectus for such Securities (as supplemented from
time to time), which are not included in this document. BNP Paribas accepts no liability for any direct or consequential losses arising from any action taken in connection with or reliance on the information
contained in this document. For the purpose of distribution in Hong Kong, this document is directed at “professional investors” as defined in the Securities and Futures Ordinance. BNP Paribas Hong Kong
Branch is registered as a Licensed Bank under the Banking Ordinance and regulated by the Hong Kong Monetary Authority. BNP Paribas Hong Kong Branch is also a Registered Institution regulated by the
Securities and Futures Commission for the conduct of Regulated Activity Types 1, 4 and 6 under the Securities and Futures Ordinance. The financial products or transactions described in this document may only
be offered, directly or indirectly, in any jurisdiction in compliance with applicable laws and regulations of such jurisdiction. The material contained in this document is not intended to be distributed or marketed
in certain jurisdictions or to certain parties in those affected jurisdictions due to regulatory restrictions.
This document makes reference to certain financial instruments (the “Financial Instrument(s)”) authorized and regulated in its/their jurisdiction(s) of incorporation. No action has been taken which would
permit the public offering of the Financial Instrument(s) in any other jurisdiction, except as indicated in the most recent prospectus, offering document or any other information material, as applicable, of the
relevant Financial Instrument(s) where such action would be required, in particular, in the United States, to US persons (as such term is defined in Regulation S of the United States Securities Act of 1933). Prior
to any subscription in a country in which such Financial Instrument(s) is/are registered, investors should verify any legal constraints or restrictions there may be in connection with the subscription, purchase,
possession or sale of the Financial Instrument(s).
In particular, the BNP Paribas Cayman Investment Funds SPC – China RMB Bond Fund Segregated Portfolio (“BNPP China RMB Bond Fund”), Flexifund Equity China “A”, Flexifund Equity China “A” Fund of Funds,
Flexifund Short Term RMB and Flexifund Bond RMB referred to in this document are not authorised by the Securities and Futures Commission and hence not available to Hong Kong retail investors.
Investors considering subscribing for the Financial Instrument(s) should read carefully the most recent prospectus, offering document or other information material and consult the Financial Instrument(s)’
most recent financial reports. The prospectus, offering document or other information of the Financial Instrument(s) are available from your local BNPP IP correspondents, if any, or from the entities marketing
the Financial Instrument(s). Certain opinions included in this document constitute the judgment of BNP Paribas Investment Partners Asia Limited at the time specified and may be subject to change without
notice. Investors should consult their own legal and tax advisors in respect of legal, accounting, domicile and tax advice prior to investing in the Financial Instrument(s) in order to make an independent
determination of the suitability and consequences of an investment therein, if permitted. Please note that different types of investments, if contained within this document, involve varying degrees of risk and
there can be no assurance that any specific investment may either be suitable, appropriate or profitable for a client or prospective client’s investment portfolio.
Investments involve risks. Given the economic and market risks, there can be no assurance that the Financial Instrument(s) will achieve its/their investment objectives. Returns may be affected by, amongst
other things, investment strategies or objectives of the Financial Instrument(s) and material market and economic conditions, including interest rates, market terms and general market conditions. The
different strategies applied to the Financial Instrument(s) may have a significant effect on the results portrayed in this document. Investors may not get back the amount they originally invested. The
performance data, as applicable, reflected in this document, do not take into account the commissions, costs incurred on the issue and redemption and taxes.
BNP Paribas Investment Partners Asia Limited, 30/F Three Exchange Square, 8 Connaught Place, Central, Hong Kong. BNP Paribas Investment Partners Asia Limited is a member of BNP Paribas Investment
Partners. “BNP Paribas Investment Partners” is the global brand name of the BNP Paribas group’s asset management services (BNPP IP). The individual asset management entities within BNP Paribas
Investment Partners if specified herein, are specified for information only and do not necessarily carry on business in your jurisdiction. For further information, please contact your locally licensed Investment
Partner.
The information contained within this document (‘information’) is believed to be reliable but neither BNP Paribas Securities Services nor any of its related entities warrant its completeness or accuracy nor
accept any responsibility to the extent that such information is relied upon by any party. Opinions and estimates contained herein constitute BNP Paribas Securities Services' or its related entities’ judgment at
the time of printing and are subject to change without notice. This document is not intended as an offer or solicitation for the purchase or sale of any financial product or service. The information contained in
this document does not constitute financial advice, is general in nature and does not take into account your individual objectives, financial situation or needs. You should obtain your own independent
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