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HSBC expects "tactical recovery" of Dim Sum bond in Q2 2015

Xinhua, April 11, 2015 Adjust font size:

The strong offshore Renminbi (RMB), the Chinese currency, exchange rate rebound underpinned the offshore RMB bonds performance in U.S. dollar terms in the first quarter of 2015, said HSBC Global Research in its latest quarterly survey.

The performance of offshore RMB bonds, or Dim Sum bonds, was not as bad as most people feared, with a total return in USD terms merely dipped by 0.22 percent, noted the report that released this week.

A strong foreign exchange (FX) rebound since March 16, guided by Chinese central bank fixing, along with a dovish Federal Reserve's tone, was the key contributor, it said.

The report said the better liquidity and stable foreign exchange would propel a "likely tactical recovery" of offshore RMB bonds in the second quarter of this year.

"The seasonality of FX strength and appeals for RMB's inclusion in the IMF's SDR (Special Drawing Rights) basket offer an anchor. The underlying capital flow picture has become more balanced since the recent reversal of earlier inflows. CNH (offshore RMB) liquidity is underpinned by increasing outbound portfolio flows after recent policy relaxation," said the report.

The IMF is going to discuss the inclusion of the RMB into the SDR basket first at an informal board meeting in May, and conduct a formal review in October.

HSBC highlights that the southbound flows in the Stock Connect scheme have picked up substantially.

The economists of the bank forecast that China will cut its benchmark interest rate by 25 basis points and reserve requirement ratio (RRR) by 100 basis points within this quarter. Endit