Australian investors are expected to take advantage of China’s liberalising capital markets following Australia’s inclusion in the Renminbi (RMB) Qualified Foreign Institutional Investor (RFQII) scheme.
The RFQII gives foreign institutional investors access to China A shares, securities in growth sectors (such as healthcare, Tech, multimedia, and consumer) not currently listed outside China, and Chinese fixed-income products.
According to BNP Paribas Securities Services Australasia head of trading, markets and financing Natalie Floate, “both local and institutional retail investors structurally underweight the second- largest economy in the world, and [RFQII] provides an easy way to reweight.”
The big four banks along with Macquarie, AMP Capital and First State Investments, are predicted initial candidates for RFQII quotas. The People’s Bank of China (PBOC) and the RBA have also agreed to create a Sydney based RMB clearing bank to facilitate RMB-dominated trade settlement.
This news reflects the growing sentiment that China’s wider economic and financial reforms will enable it to overcome its present economic challenges. Alliance Bernstein director Asia Pacific fixed income Hayden Briscoe argued that these reforms, along with opening capital markets, could see 50% of its global trade settled in RMB in the next few years.
Briscoe added that giving foreign investors access to its capital markets will help China reduce the political ramifications of holding a significant amount of its nearly $4 trillion in foreign exchange reserves in US government bonds. To mitigate this, he said, more of China’s claims on the US should be denominated in RMB, and “one way for China to encourage foreigners to borrow in RMB is by liberalising the country’s capital markets.”