China’s continued low interest rate environment to address deflationary pressure will have a negative effect on future fixed income products and will possibly drive investors to other investment products, said Hong Bin Qu, chief economist of Greater China at HSBC during a press conference to launch the bank’s Asian Outlook 2015.
Qu said that the People’s Bank of China plans to lower the country’s interest rate twice in 2015 may affect investors’ choice of investment products and could benefit structured products.
“The interest rate cut will benefit the existing fix-income products as the yield of future fixed income products will go down with the interest rate cut,” he said. “Investors may go to other long term wealth management products with better returns.”
With the increase in cash flow brought by the Shanghai-Hong Kong Stock Connect scheme, Qu expects China to open more channels of cross border trades to strengthen the flow. “I think it is possible to start Shenzhen – Hong Kong mutual stock access within this year,” he said. “We have one stock connect already, why not to install another one.”
Qu also expects the Chinese government to enter into more currency swap deals with central banks of other countries to further promote the renminbi internationalisation.
Herald van der Linde, deputy head of equity research and head of equity strategy Asia- Pacific at HSBC said that the current arbitrage opportunities between A-shares and H-shares is not obvious enough.
“Increasing flows under the Shanghai–Hong Kong Stock Connect [scheme] has led to the rocketing performance of Mainland China’s equity market, while there is no much change in H-shares,” he said. “Hopefully the launch of Shenzhen – Hong Kong mutual stock access will increase A/H shares arbitrage opportunities.”
According to market data, SSE Composite Index that reflects the general performance of shares listed in Shanghai Stock Exchange had surged 52% in 2014, while Hang Seng China Enterprises Index has recorded a growth of 10.8 % in the whole year.
Another A-shares benchmark index CSI 300 has been crowned the most popular underlying in the Chinese market in 2014 with the issuance of 419 and a volume of CNY 44, 873 ($7,327). The same as the SSE Composite Index, CSI 300 has showed a rally of 51.66% increase in 2014.
As of the whole year, SRP data has seen there is an issuance of 2,257 structured products with sales of CNY194,740 ($31,796) in China and an issuance of 1,350 with sales of HKD981,190($126,542) in the Hong Kong database. In China, index linked products picked up the trend in 2014 as investors’ risk appetite has enlarged and started to have interest in equities market. Gold linked products and interest rate linked products remained popularity while local banks tried to introduce more complex payoff with foreign underlyings.
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