HFT Investment Management (HK) is launching a renminbi unit-trust fund today, using its 1.1 billion yuan (HK$1.35 billion) quota of renminbi qualified foreign institutional investors - but is warning that this year will be challenging.
The joint venture between Haitong Securities and BNP Paribas said it was cautiously optimistic about market prospects for this year, although HFT chief executive Chi Lo warned investors that it would be a tough year.
'If you pull the word 'dragon' into two parts, it becomes 'drag on',' Lo said, adding that in coming years people would focus less on the yuan's appreciation and more on its internationalisation. 'Since 2007 China's current account surplus has been coming down. And with what's going on in Europe and North America, we expect the surplus to keep coming down.'
Lo said the yuan's internationalisation was a structural process that could not and would not be fast-tracked. 'The next steps are going to be more important and more difficult, and likely much slower, because China needs to convince players to increase yuan demand for non-trade purposes.'
To achieve that, Beijing needs to sanction more yuan products, to develop a hedging market and make the yuan currency regime less complex and strengthen the onshore banking system. He expected the central bank to cut interest rates and banks' reserve requirement ratio later this year to keep the country's economy moving, as fears of economic overheating receded.
Lo said Singapore and London could not push Hong Kong from its leading position as a yuan offshore hub, even if they also became offshore centres for the currency. 'Right now and for the next few years, the major way to accumulate yuan in an offshore market will be through trade.'