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Fewer local companies expected RMB to depreciate in the next 12 months

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Most pessimistic business performance outlook since 4Q12


HONG KONG, 15 FEBRUARY 2016 – DBS Bank (Hong Kong) Limited released the fourth-quarter 2015 findings of the DBS RMB Index for VVinning Enterprises (DRIVE) today. The index reading dropped further to 59.1 from the previous quarter’s 59.5. Business needs for RMB, including RMB customer orders, invoices and trade settlement, were stable.

Fewer local companies expected RMB to depreciate in the next 12 months
Far fewer surveyed companies believed that the RMB will continue to depreciate against the USD in the next 12 months (37% in 4Q15 vs. 51% in 3Q15), 35% expected the RMB to depreciate by 2-5%, and only 2% expected the RMB to depreciate by over 5%. However, the survey period, which extended from 22 October to 25 November 2015, could not capture the recent surge in depreciation expectations and subsequent market turmoil.

Nathan Chow, Vice President and Economist, Group Research, DBS Bank (Hong Kong) Limited, said: “Since December 2015, the RMB depreciated 2.7% against the USD. From a technical perspective, further downside risks appear limited in the near-term given the trade-weighted index is now hovering near the floor of its perceived ‘stable’ range. Having said that, the recent RMB slide could exert pressure on other regional currencies; drops in those currencies could lead to second-round effects on the RMB. We expect the RMB will drift towards 6.68 per USD by the end of 3Q16.”

Business needs for RMB tipped to decline in the short term, but RMB product use is expected to increase
The use of RMB hedging products is generally increasing as large corporates adopt various hedging strategies to mitigate exchange rate volatility. Small- and medium-sized enterprises tend to invoice in RMB because they may not have the experience and/or expertise to hedge foreign exchange risks effectively. Indeed, between 2009 and 2015, the share of RMB-settled cross-border trade rose from almost nothing to 30%.  

From the survey, fewer respondents (33% in 4Q15 vs. 37% in 3Q15) claimed that they have RMB business needs (RMB customer order/ invoices/ trade settlement) in the next 12 months, while the same percentage of respondents (9% in 4Q15 vs. 9% in 3Q15) claimed they expected to decrease usage in the next 12 months.

Meanwhile, the intention to use RMB products in the next 12 months increased, with 44% of respondents intending to use RMB products in next 12 months (vs. 41% in 3Q15). Among companies that use trade services, the intention to use RMB hedging products in the next 12 months also increased (6% vs. 2% in 3Q15).

“Since the start of the year, China has been responding to capital outflows with regulations designed to reduce transactions of the RMB in offshore markets. While such regulations seem able to restrain exchange rate volatility, they prolong China’s liberalisation process. In response to the capital restrictions, firms shift transactions back onshore from the offshore market, which has greater liquidity and better infrastructure. This could have a negative impact on the risk-hedging capacity of market participants,” said Nathan Chow.

“Furthermore, firms are now hesitant to remit funds onshore after PBoC limited outflows for banks providing yuan cash-pooling services for multinational corporations. The appetite for dim sum bonds is also waning due to the volatile exchange rates and interest rates offshore, evidenced by the fastest ever falling bond issuance amount. As such, balancing the benefits and costs of regulation is a major challenge for Chinese policymakers,” he continued.

Most pessimistic business performance outlook since 4Q12
Only 13% (20% in 3Q15) respondents expected improvements in business performance. Similar to the previous quarter, 16% of local companies believe business will slow down by over 10% while more than half of the respondents in the wholesale sector (55% vs. 43% in 3Q15) expected businesses to slow down, and the same can be said for the retail sector (54% vs. 37% in 3Q15).

Lily Lo, Assistant Vice President and Economist, Group Research, DBS Bank (Hong Kong) Limited, said: “Again, the retail market contraction is expected to continue amid a strong HKD, China’s slowdown and the ongoing anti-corruption campaign. All of these are multi-year factors. It is expected that property prices in Hong Kong will drop some 10% by the end of 2016, but a market meltdown is unlikely. Investors should also pay close attention to the city's economic situation and labour market conditions.”

DBS RMB Index for VVinning Enterprises (DRIVE) offers a strategic tool for policy-makers, businesses and investors to track the actual usage and acceptance of RMB among Hong Kong companies as well as their sentiment towards future RMB adoption. DBS releases the findings of DRIVE on a quarterly basis. Fieldwork for the 4Q 2015 survey was conducted through telephone interviews with the business owners and decision makers of over 200 companies in Hong Kong.



  1. DBS RMB Index for VVinning Enterprises (DRIVE) 4Q 2015 presentation deck
  2. DBS RMB Index for VVinning Enterprises (DRIVE) 4Q 2015 research report



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