If China’s financial sector regulators were a team in the NBA, they would most certainly be the Golden State Warriors. Those into basketball remember the amazing season the Warriors enjoyed completing the Western Conference at the top with a record 73 wins, the highest in NBA’s history.
China’s financial sector regulators in 2015 were similarly at the top of their game. Reform and market-opening came in quick succession. Not even scrapping the deposit interest rate ceiling in October 2015, which is the final step in the interest rate liberalization journey, stood in the way. The prize shortly was news that the International Monetary Fund (IMF) has approved the inclusion of the Chinese renminbi to become the fifth currency in the exclusive basket that forms the Special Drawing Rights (SDR).
No sooner has it won the nod of the IMF the Chinese regulators set their sights on getting its equities to be included in the MSCI global benchmark indices, a milestone not unlike winning the NBA championship that should unleash a flood of global institutional funds into China’s A-share market. It would have benefited China tremendously as a counterweight to the mass of retail investors that dominate its stockmarkets.
Alas, it was not meant to be. Starting with the disastrous outcome from the failed circuit-breaker experiment as 2016 got under way to the series of missteps subsequently, Chinese regulators blew the amazing lead they had and eventually, like the Warriors in Game 7, choked at home.
Unlike the Warriors, however, it is not all bad news. The Monetary Authority of Singapore (MAS) on 23 June 2016 said that it will include renminbi investments into its official foreign exchange reserves starting from June 1 2016.
It cites calibrated financial liberalization of China’s financial markets and growing acceptance of global investors in renminbi assets as reasons behind the move. Indeed, MAS has been making renminbi investments through the QFII (qualified foreign institutional investor) and interbank bond market schemes since 2012 to diversify its portfolio.“The inclusion of renminbi assets in MAS’ official foreign reserves is timely,” says MAS deputy managing director, Jacqueline Loh.
It is also timely for another reason according to Becky Liu, senior rates strategist at Standard Chartered. “Global yields at the moment are just too low. Reserve managers are keen to diversify into renminbi assets.”
“MAS’s decision shows that the inclusion of renminbi to the SDR basket is not only meaningful in symbolism,” says Liang Hong, chief economist at CICC. “As more central banks refer to the SDR basket and increase their renminbi assets in their foreign reserves, it is likely that renminbi will be accepted more widely especially after new SDR basket becomes effective” later this year.
At least for the Chinese financial regulators, coming as it did shortly after the MSCI rejection, MAS’ official vote of confidence would go some ways to assuage the index setback. In the case of the Warriors, Stephen Curry did not even get to win MVP of the playoffs.
