Market Turbulence Brings Opportunities for Standard Chartered
The unpredictable nature of the global market, fueled by US President Donald Trump’s policies and the growing appeal of yuan assets, is expected to boost Standard Chartered Bank’s capital markets and trading business this year. According to John Thang, the bank’s head of markets and strategic client management and solutions for Hong Kong and Greater China, as well as North Asia, Trump’s inflationary policy plans and tariff rhetoric on China and other countries are causing significant market fluctuations.
Rising Demand for Risk Management
As a result, Standard Chartered has seen an increase in demand for foreign-exchange management and hedging. Thang believes that the need for companies and financial institutions to manage risks will continue to grow, with yuan-related risk management becoming a significant topic for market participants. The onshore yuan has weakened by 1.98% against the US dollar since the US presidential election in November, and Standard Chartered expects the currency pair’s exchange rate to be between 7.2 yuan and 7.4 yuan this year.
China’s Monetary Tools
Thang predicts that China will rely on monetary tools such as interest-rate cuts and fiscal policies like issuing debt to address its domestic problems while fending off Trump’s tariff threats. He believes that China will continue to use these measures this year, without drastically depreciating the yuan to deal with trade tariffs.
Bond Yield Spreads
US and China bond yield spreads have tracked the currency pair’s movement, widening in the last few months and driving the yield for 10-year Chinese government bonds below 2%. Bearish investor sentiment and the expectation of lower interest rates have continued to attract money into the China bond market, making Chinese government bonds outperform compared to US, European, and Japanese ones.
Growing Attractiveness of Onshore Chinese Bonds
The latest measures by the People’s Bank of China and the Hong Kong Monetary Authority to lift the utility of onshore Chinese bonds have amplified the asset’s attractiveness. Global investors can now use these bonds as collateral in repurchase agreements and derivatives transactions at OTC Clearing Hong Kong to generate greater returns and manage liquidity.
Interest Rate Cuts
Thang expects US inflation to be sticky, and along with Trump’s inflationary trade policy, the pace of rate cuts could be slower than expected. He predicts that interest rates could be cut two or three times, totalling half a point or three quarters of a point, with the first rate cut of this year likely to be in the second quarter. Hong Kong banks’ prime lending rates should follow the US rate cuts, although the extent may vary.
A Calm Note on Trump’s Second Term
Despite market uncertainties, Thang remains calm about Trump’s second term, believing that it will not be as dramatic as his first term. He expects the China-US trade conflicts to continue, but with a greater emphasis on compromise from both sides.
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