Hype is returning to the renminbi capital markets. After a few lacklustre years for Chinese equities, Shanghai and Hong Kong are on their biggest bull runs in years, while interest rate cuts have lifted interest in renminbi bonds.
The renminbi’s overseas push may have taken a back seat to China’s monetary easing, but the currency’s global importance can only grow in the years to come.
A landmark trading link between Shanghai and Hong Kong has taken longer than expected to build momentum, but rising trading volumes are enhancing its significance as a template for China’s liberalisation.
China’s reforms promise to improve risk pricing and end a long history of government bailouts, but slowing growth and rising defaults are testing the resolve of the country’s regulators.
After unfavourable foreign-exchange moves and plunging offshore liquidity silenced the Dim Sum bond market at the start of 2015, signs of a revival are beginning to build.
Taiwan has emerged as a hotspot for overseas renminbi fundraising, drawing international issuers to an enthusiastic investor base. Although the market lacks the clout of Hong Kong or Singapore, it is becoming a growing rival to the larger hubs.
The recent rally in A-share valuations has been remarkable even for China’s notoriously volatile mainland bourses. The last boom-bust cycle led to a freeze on IPOs, as well as sweeping reforms. Can investors avoid another all-too predictable correction?
With yields onshore renminbi bonds lower than those on their offshore equivalents for the first time, foreign issuers should be keen to take advantage of onshore liquidity to reduce funding costs, but red tape remains a powerful obstacle.