Financial Services Focus Group Quarterly Update – Q3 2016

Published on 2016-11-14

In this update you will read: China’s 3Q16 GDP growth; the RMB has been formally included in the IMF’s Special Drawing Right basket; seven new FTZs announced; PBOC approved new guidelines approving the establishment of the onshore CDS market.

  • China’s 3Q16 GDP growth was 6.7%, flat from 2Q16 and in line with the Government’s official full year target of 6.5-7.0%.
  • The RMB has been formally included in the IMF’s Special Drawing Right basket on 1 October 2016, joining the USD, EUR, JPY and GBP, with a 10.92% weighting.
  • The Ministry of Commerce announced that seven new FTZs will be set up in Liaoning, Zhejiang, Henan, Hubei, Sichuan, Shaanxi and Chongqing.
  • PBOC approved new guidelines approving the establishment of the onshore CDS market on September 23 2016, effective immediately.

Although beyond the boundary of Q3 2016, the major development was the election of President Elect Trump on November 8 2016. Markets were wrong footed with expectations of a Clinton victory being heavily discounted throughout Election Day itself and even upto the closure of voting in a number of states. Notwithstanding the unexpected nature of the result, markets recovered from early weaknesses showing considerably more resilience than that seen following the Brexit vote in June. In light of statements made during the campaign, much focus will remain on China and Mexico as the policy priorities of President-Elect Trump become clearer.

Europe continues to be impacted by continuing uncertainty over the nature of Brexit. Sterling has stabilised from late June but showed continuing weakness in October reaching lows of around 1.21. Sterling has, however, recovered some ground over the last week.

Macro-economic data in China over Q316 has been broadly stable or at least provided little concern for further downside risk with the exception of the RMB exchange rate which has tested multi year lows in recent weeks.

October’s figures for Industrial Production were up 6.1% year on year in October with Manufacturing and Output growth showing solid gains. Caixin PMI readings in October were the strongest since July 14 at 51.2. Fixed Asset Investment continued to show robust growth at 8.3% year on year. Retail sales growth moderated to 10% month on month though one off factors including a positive base comparison with October 2015 were being touted as a reason to view these figures as not necessarily indicative of any wider weakness.

China policy developments through Q316 continued to focus on the RMB to manage its fall relative to other individual currencies and associated policy to promote inward capital movement to counteract other drivers. Other major policy moves were associated with efforts to curb real estate price growth across a number of first and second tier cities. Initial indicators suggest these policies appear to be having the desired effect though more data points will be required.