Standard Charted: Subtle Reassurance

Standard Chartered note that their "Renminbi Globalisation Index (RGI), eased for two straight months to 2,598 in October after rising to a new high of 2,698 in August. This 3.7% drop from the peak brings the RGI back to April-May levels, a small setback considering how far the index had climbed over the past year and, more importantly, since its 2017 trough. The latest drop in RGI is partly a reflection of prior market headwinds, as the impact of the regulatory crackdown on various sectors and the ensuing sell-off in China stocks took time to feed through to our calculations; this also explains the breaking of the 'foreign holdings of onshore assets' component's 16-month-long rising streak. However, a sizeable drag from 'cross-border payments' on headline RGI growth indicated weaker Renminbi usage not only among foreign investors but also more recently by corporates, evidenced in a dip in Renminbi trade settlement in October."

• "Yet a closer look reveals signs of underlying resilience. For one, northbound portfolio investment only reversed for equities but not bonds in July and August; more importantly, more timely proxies showed that northbound equities were off to a better start in Q421. Official October data also showed industrial production recovering from power supply disruptions; this, together with still-robust exports and manufacturing investment, means limited further downside risk to cross-border payments. Most importantly, CNH deposits and Dim Sum bond issuance have continued to expand (the latter to a record high on a YTD basis), partly supported by a resilient Chinese yuan (CNY); even the dip in CNH FX turnover could be construed positively, with limited volatility amid Fed tapering headwinds."