The ASX launched its Chinese currency settlement service on Monday, enabling companies to settle renminbi-denominated transactions in real time.
AllianceBernstein director of Asia Pacific fixed income Hayden Briscoe said the internationalisation of the renminbi is an important part of China’s economic rebalancing strategy and involves setting up settlement services in key financial centres around the world.
Mr Briscoe said AllianceBernstein expects the RMB will emerge as a regional reserve currency more quickly than most people imagine.
“These developments should be a wake-up call for Australian investors – China’s government bond market is already the third biggest in the world,” said Mr Briscoe.
Mr Briscoe said this rebalancing of China’s economy will be the biggest development for China in the next decade with consumption set to play a larger role alongside investment.
“This will involve the liberalisation of the country’s capital account and capital markets, with far-reaching implications for trade and investment globally and in Australia,” said Mr Briscoe.
“As these reforms progress and the country’s capital markets open, fixed-income investors will need to rebalance their portfolios to Chinese bonds when they eventually go into index,” he said.
Mr Briscoe said it is estimated investors will need to rebalance to around 12 per cent “just to stay at market weight”.
While Mr Briscoe said it is understandable investors are paying considerable attention to the short-term concerns about China’s economy, they should “not lose sight of the current development which will have major impacts in the medium and long term”.
“We expect current reforms under the leadership of President Xi Jinping and Premier Li Keqiang to result in a rebalancing of the economy rather than a hard landing,” he said.
Mr Briscoe said China is “transforming from a wold manufacturer to a world banker” with central banks from 22 countries including Australia announcing plans to hold RMB-denominated assets.
“The RMB’s role in trade is beginning to grow, with China settling around 20 per cent of its cross-border transactions in the currency – a proportion set to grow to 50 per cent in the next few years,” he said.
