Citi: Fi­nan­cial mar­ket set to match US size

China Daily (Hong Kong) - - BUSINESS - By CAI XIAO caix­iao@chi­nadaily.com.cn

The Chi­nese fi­nan­cial mar­ket size will match that of the United States in 2025, ac­cord­ing to a Cit­i­group Inc re­port.

More than $3 tril­lion in for­eign cap­i­tal will en­ter the Chi­nese fi­nan­cial mar­ket, it said.

Liu Li­gang, chief China econ­o­mist of Cit­i­group, said in the re­port that China has been trans­form­ing its fi­nan­cial mar­ket. The fo­cus is on de­vel­op­ing the do­mes­tic fi­nan­cial mar­ket rather than open­ing up the cap­i­tal ac­count.

The Shang­hai-Hong Kong Stock Con­nect in 2014, the Shen­zhen-Hong Kong Stock Con­nect in 2016, and the Bond Con­nect pro­gram this year rep­re­sent the new ap­proach, ac­cord­ing to the Cit­i­group re­port.

“This year could be a turn­ing point for global as­set al­lo­ca­tion,” said Liu. “Re­moval of re­stric­tions to en­try, to­gether with A shares’ in­clu­sion in the MSCI Emerg­ing Mar­ket In­dex, will raise for­eign own­er­ship of Chi­nese as­sets, likely cre­at­ing fur­ther mo­men­tum for mar­ket broad­en­ing and deep­en­ing.”

The re­port said China’s nom­i­nal GDP, which is un­ad­justed for in­fla­tion, will reach $28 tril­lion by 2025, com­pared with $26 tril­lion for the US, based on an­tic­i­pated growth rates and a grad­ual ap­pre­ci­a­tion of the yuan against the dol­lar.

Based on the his­tor­i­cal re­la­tion­ship with GDP, US fi­nan­cial mar­ket size will reach $137 tril­lion by 2025, and that of China would be equiv­a­lent in yuan, the re­port said.

New cap­i­tal to­tal­ing $3.4 tril­lion will flow into Chi­nese fi­nan­cial mar­kets from abroad, with $779 bil­lion go­ing into the bond mar­ket, $200 bil­lion into eq­ui­ties and $2.38 tril­lion into bank as­sets, it said.

“Global in­sti­tu­tional in­vestors would no longer have the op­tion of stay­ing away from China’s mar­kets if they wanted to achieve above-bench­mark re­turns,” Liu said. “China’s cap­i­tal mar­ket re­forms in the next five to 10 years are re­shap­ing global as­set al­lo­ca­tion.”

Jing Ul­rich, vice-chair­woman of JPMor­gan Asia, said China has be­come a safe har­bor amid global eco­nomic un­cer­tain­ties, and for­eign in­vestors are ac­tively par­tic­i­pat­ing in China’s fi­nan­cial mar­kets.

A-share in­clu­sion in the MSCI Emerg­ing Mar­ket In­dex is also an im­por­tant mile­stone for China’s eq­uity mar­ket and may trig­ger a short-term rally due to in­creased ex­pec­ta­tions of fresh liq­uid­ity en­ter­ing the on­shore mar­ket, said Ul­rich.

Bloomberg and Jiang Xue­qing con­trib­uted to the story.

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