China: Lot of details in draft rules on AMPs - Westpac

Frances Cheung, Research Analyst at Westpac, suggests that there are lots of details in China’s draft rules on AMPs (asset management products) and is highlighting two of them: 1/ AMPs shall be managed on an NAV basis, which may lead to rebalancing at times of volatile markets and hence aggravation of yield moves.

Key Quotes

“2/ FIs cannot provide principal or return guarantee on AMPs. If investor demand for AMPs fall, funds may be diverted to other products – in the case of traditional deposits, CGBs and PFBs may not be affected much as they are less risky. Onshore CNY rates and yields rose in response, but the bearish bond market is not affecting the CNY with low foreign ownership. USD/CNY is likely to trade tight in 6.60-6.65, assuming the authority is comfortable with the CNY around the current level and the USD does not regain strength near-term.”

“The gradual uptrend in onshore CNY rates does not appear to be the initial trigger of the recent surge in CNH rates and forward points, with the movements in offshore and onshore having different characteristics. That said, the backdrop of tighter liquidity and ongoing deleveraging onshore does have an impact, as it means it is more difficult for offshore to source RMB should there be an increase in demand, and thus exaggerating any upward moves in offshore CNH forward points.”