Wikimedia CommonsBy NASA. Capital Strategies come into agreement with REYL AM to distribute their funds in Latin America
Capital Strategies, a firm specialized in the representation of international managers with a niche profile, has signed an agreement to distribute the funds of Reyl AM in Latin America.
Reyl AM, is an investment boutique based in Geneva. With more than US$8 billion in assets under management, they offer equity, fixed income, and alternative funds. Their philosophy of investment is based on preserving the capital that generates sustainable alpha across all market cycles.
Nicolás Lasarte, partner of Capital StrategiesPartners and responsible of business development in LatAm comments, “Reyl is an asset management that is very known around Europe, especially in Switzerland. However, they have had no presence in Latin America. Capital Strategies will provide institutional distribution of their product in the region. Specifically Mexico, Peru, Colombia, Chile, Uruguay, and of course Brazil.”
Their flagship is the Reyl Emerging Markets Equities, which was awarded by Morningstar with 5 stars. Launched in 2009 with US$1.7 billion in assets under management, their main focus is based on a process of balanced and disciplined investment that will identify opportunities along all of the sectors, while investing in any capitalization. With a quantitative bias, their objective is to generate alpha in all of the market cycles.
“Besides being a number in terms of return, the size of the fund is very important to us,” notes Lasarte. “It allows us to access to small or medium companies, which is partly fundamental in the universe of emerging markets, by maximizing the uptake of growth of these countries by fund investors.”
“By having a policy in controlling the growth rate of assets like the policy that Reyl has, it appears to us as well that it is fundamental to have this policy in the universe of investment. Other funds with a bigger size have difficulties in investment with little companies because their tickets are way too big which decreases the generation of alpha,” he adds.
Wikimedia CommonsBy Humayunn Peerzaada . India, una joya que necesita capital extranjero para seguir creciendo
Given the amount of cash in the pockets of global investors today, India presents a wealth of potential. But to harvest this, the country needs capital. And while it does have a decent savings rate, it falls short on capital formation; it therefore needs long-term foreign capital, hubbies.comsaidin itsGuide to Investing in India 2013 divided into sixchapters: Demographics and consumption; Equity Markets; Fixed Income; Real Estate; Private Equity and How to Access the Indian Market.
In the absence of much organised analysis that helps long-term investors make sound decisions, Hubbies objective with this Guide is to provide a useful starting point to help answer some of the key questions in the minds of investors: What does the economy look like? What are its long-term drivers? What road-blocks does it face? And even if investors are convinced about the long-term fundamentals of the economy, are there shorter and medium-term factors that could de-rail the secular trend?
Assuming investors are convinced about the economy – how can they leverage the fundamentals? What asset classes are available? For each asset class, what are the fundamentals, as well as risk/return equations? And if investors are ready to buy, how do they access the investments? Should they invest through globally recognised fund managers or do the local investors have some competitive advantage? How can they access the local fund managers? Are there are restrictions or disincentives that change the risk/return equation?
If you want tosee thecomplete guideyou cansee this link
Wikimedia CommonsFoto: Marcosleal. Las trabas económicas de Brasil reducen el número de UHNWI del país y su fortuna total
UHNW population growth in has suffered from the steep drop in GDP growth but may stabilize should appropriate policies be adopted. This is one of the conclusions highlighted in the World Ultra Wealth Report 2012-2013 by Wealth-X, which, on the other hand, notes that Brazil’s attraction as an investment destination is supported by its net global creditor status, stable external liquidity position as well as enviable international reserves, which are approaching the US$380 billion mark, approximately half the region’s reserves. “Though the negative impact on an appreciating currency is widely recognized, there is official support for policies that support a strong Brazilian Real”, it adds, noting that the Real is expected to appreciate in view of excess global liquidity and investor thirst for high yield investment options, particularly in terms of global fixed income investments.
The total wealth in Braziliam UHNWI’s hands has fallen 6.7% from a year ago reaching US$865 billion while the number of UHNW individuals falls 1.7% up to 4,640 individuals.
According to the report, further liberalization of state-controlled sectors and companies, such as state-controlled banks and Petrobras, could boost Brazil’s attraction for investors, who have felt locked out of state controlled monopolies. Brazil reportedly received close to US$60 billion FDI flows from June 2011-2012. “The need to invest in energy and transport infrastructure, prerequisites for future growth, is urgent and should be at the forefront of government policy”.
Other hurdles that Brazil potentially faces would include, the inclination towards increased trade protectionism perceived growth in corruption and the need to address challenges face by the manufacturing sector in relation to the tax structure.
Wealth-X analysis shows there are 49 billionaires in the country. This group of billionaires, representing the top 1.1% if the UHNW population, control 34.7% of the total fortune attributable to the ultra wealthy segment. On average, these billionaires are US$6.1 billion each.
The lowest tier of the UHNW group represented by those worth US$30 million to US$49 million is the largest group, making up 40.8% of the total UHNW population in Brazil. They have combined fortune US$75 billion or 8.7% of the total wealth of Brazil’s ultra affluent.The report concludes pointing out that the Brazilian UHNW individuals are mobile and versatile, with at least 10% of UHNWI’s conducting business primarily outside of Brazil and at least 9% owning residences outside of Brazil.
Next month, Latin Markets is bringing over 400 industry leaders to the Private Wealth Brazil Forumon June 11 at the Tivoli Hotel in Sao Paulo. The one day forum focuses on providing updates regarding regulation, investment management, trust issues and strategies to protect and grow wealth. You can register through this link.
Foto cedidaFoto: Tim Stevenson, manager of the Henderson Horizon Pan European Equity. Debunking the ‘growth versus value’ myth
Dogmatically following a pure growth or pure value investment style is dangerous and misguided. Instead, equity investors need to be pragmatic and adaptable as to where to find the best investment ideas.
Europe has been dogged by political setbacks and muted growth for quite a while, and especially since the start of 2010, when the global credit crunch that began in the US sub-prime housing market evolved into a full-blown European sovereign debt crisis. During this time, however, European companies have ultimately delivered decent performance for investors. A total return of 27.6% (Source: Bloomberg, MSCI Europe Index, 1 January 2010 to 30 April 2013, in euros), cumulative performance of over 8% per annum, seems very reasonable given the level of investor uncertainty, record-low interest rates and the lacklustre macroeconomic environment.
So while progress has been intermittent, we have seen a stockmarket recovery of sorts. What is different about this upturn, compared with the historic norm, is leadership. For the majority of the past three years growth stocks have been favoured over value stocks – re-igniting the debate between growth and value managers. Over my career I have always chosen those companies that I believe can grow sustainably – allowing us to participate in their development. This generally puts me on one side of a rich industry discourse, with more value-orientated managers on the other side.
Recent evidence favours European growth stocks, which have produced a total return of 41.1% since the start of 2010 (Source: Bloomberg, MSCI Europe Index, 1 January 2010 to 30 April 2013), whilst European value stocks have returned 15.9% – a difference of over 25%.
Source: Bloomberg, MSCI Europe Index, in euros, as at 30 April 2013. Past performance is not a guide to future performance.
So what has caused this divergence in performance? Value indices are heavily skewed to financial, utility, energy and telecommunications stocks, which tend to generate a high proportion of their revenues domestically in Europe, where government spending is retrenching and economic growth is scarce. Each of these sectors are characterised by their own industry-specific issues: the capital base for a number of European banks remains questionable; utility firms are struggling to find growth as taxation pressure grows from revenue-hungry governments; energy companies are having to increase capital expenditure in search of greater productivity; and telecommunications firms are faced with intense pricing pressures and falling sales, forcing some to cut dividends sharply due to high debt levels.
In contrast, growth indices are largely biased towards those globally exposed companies where growth has, on the whole, been more robust, such as industrials, consumer, information technology and healthcare stocks. Aside from geographical diversity, many of these companies are also benefiting from other structural advantages, such as high barriers to entry, pricing power or favourable regulation.
Source: FactSet, MSCI, at 22 April 2013
Given these advantages, it is not surprising that growth companies have outperformed. And while economic growth globally and in Europe remains below the long-term trend it seems likely to me that growth stocks will continue to do well. The debate however, is not clear cut; the lines between growth and value are often blurred at any one time (and these lines move over time as well) and it is becoming harder to classify stocks as ‘pure value’ or ‘pure growth’. For example Deutsche Post is my largest holding. I like the stock because of its impressive growth in parcel deliveries as more and more consumers order their goods online. Performance is particularly strong in Asia where Deutsche Post’s DHL division is the market leader. Other managers hold the stock because of its valuation case and dividend yield.
The same is true at the sector level where the materials sector is heavily represented in the growth index – something I find surprising. A number of stocks in the sector have exhibited good growth in the last ten years as the China-fuelled resources super-cycle has been in full swing, but with China seeking to reduce its dependence on infrastructure spending, the potential for future growth seems highly questionable. To complicate this further, what is thought of as growth can also become value – and vice versa. The technology sector is one example, which has transitioned from growth to value and back again since the start of the new millennium.
Easier distinctions to make, in my opinion, are the ones between high quality and low quality– with high quality characterised as industry leaders with strong balance sheets, low borrowing costs, sustainable cash flows and management teams focusing on the long term. I would also include companies that are actively and constructively seeking new avenues of expansion. This group of stocks is naturally biased towards growth names but there are also opportunities in so-called ‘value’ businesses. Deutsche Post is one example, but others include industrial conglomerate AP Moeller Maersk, Allianz (insurance), Deutsche Telekom and BT Group (telecommunications), and Novartis and Sanofi in the pharmaceuticals industry (once thought of as the growth sector but which is now primarily value).
When constructing my portfolios I try to avoid becoming too fixated on growth or value nametags. The results have tended to lead to a judicial mix of core quality growth stocks and those that are more cyclically sensitive. I tend to favour a more holistic approach, favouring companies with diversified sources of revenues, operating in established markets, with robust business models, proven management teams and solid finances – attributes which should help them to outperform in both rising and falling markets. These are the companies that I expect to be around and do well in the years to come.
Past performance is not a guide to future performance. The value of the fund and the income from it is not guaranteed and may fall as well as rise. You may get back less than you originally invested.
Tim Stevenson, manager of the Henderson Horizon Pan European Equity Fund
. Luis Moreno assumes the direction of Private Banking, Asset Management, and Insurance Division of Santander
Luis Moreno García has been named director of the division in Private Banking, Asset Management, and Insurance Division, assuming a week later that Javier Marín has been named Chief of Executive Officer (CEO) of the bank replacing Alfredo Sáenz, sources have been confirmed by Grupo Santander to Funds Society.
The appointment of Luis Moreno García has been communicated over an internal memo that has been signed by the new CEO of the bank (Javier Marín). Moreno, who started working in Grupo Santander in 1988, used to be the director of Marketing in that same division.
José Salgado Fuertes de Villavicencio has been named global head of Private Banking. The Private Banking Commercial area and the Private Banking Products and Market Intelligence area will report to him. In accordance with the established corporate model, each country’s private banking business units that are integrated within commercial banking will report globally to José Salgado, and locally to the region’s corresponding commercial banking head.
Also,Oscar Villoslada Montpart has been named global head of Insurance. The Insurance Commercial area and the Insurance Products and Market Intelligence area will report to him. The new head of the division’s Marketing area, to replace Luis Moreno, will be Maria Dolores Pescador Castrillo.
The division’s remaining business areas, Asset Management and Business Development, will maintain their current structures and heads. The corporate support areas will not undergo any modifications, maintaining, inaccordance with the model defined by the Group, the process of double reporting to the business division and to the corresponding corporate support division.
Jordi Comas, Managing Director of Andbank. Andbank expects to double its business in Latin America in four years, with a clear bet on Mexico and Brazil
Andbank has been in Latin America for more than ten years. A decade in which has focused all its efforts towards creating a market through acquisitions and new contracts in order to establish its model of private banking. However, its project has reached one of its most ambitious moments due to the bank’s plans of doubling its assets under management for the next four to five years, “taking into consideration the results,” according to Jordi Comas (Managing Director) in an interview with Funds Society.
Today, Andback manages US$15 billion under management, which means they are suppose to reach US$30 billion in five years, with a clear bet towards he Brazilian and Mexican markets. Fifty percent of the company’s assets come from foreign countries, and if goals are achieved, eighty percent of its business would come from the international division mainly from Latin America. “We want to be a Latin American private bank,” emphasized Comas.
“In 2012 we grew 20% and the idea is to keep growing until the international area takes up 80% of the business.”
In Andbank’s last 12 years, the result of the merger between two family banks from Andorra (Banc Angricol y Banca Reig) focused on private banking for more than 80 years and has experienced an important transformation that assisted important moments such as in 2008 when they decided to establish the markets that they considered vital for their strategy, and where they entered “with conviction and determination,” which was a crucial change in strategy that coincided with the arrival of the group led by Jordi Comas and Ricard Tubau, who is today’s Chief Executive Officer of the bank.
Restructuring the Business
Comas and Tubau, who came from the consulting business, specifically from the Boston Consulting Group (BCG), prepared a project that has put the bank in a very privileged position. After the merger in 2001, the international expansion began in 2003 and in 2008 a new period started, which Comas defined it as a period of economic success, a period that has opened the bank to the world. The whole bank was restructured in 2008 while maintaining the same direction, but still focusing on changing their profile.
“Comas believes that the banks that understand Latin America ‘are very few.’ We understand the idiosyncras, we have no rush and we invest for the long run.”
Since his arrival, the bank has grown in the volume of assets at annual rates close to fifteen percent, as well as maintaining one of the highest solvency rates in the sector (above twenty percent). Also, the payroll has doubled and the bank has upgraded from being in five countries, to now 12.
Based on this topic, Comas remembered that in 2008, only 5% of the business came from Latin America; a percentage that has reached 40% today. While in short-term markets, more than 50% will come from the international businesses. Andbank has offices with banking authorization in Spain, Luxemburg, Monaco, Bahamas, Panama, and Mexico. Therefore, adding up to seven banking authorizations, including Andorra. The bank also has offices in Switzerland and Miami where they have a broker dealer.
“Fifty percent of the business will come from other countries in the short run and expect it to continue growing. We have grown twenty percent in 2012 and the plan is to continue growing up to the point where the international area will generate 80% of the business,” according to his interview.
“The banks that understand Latin America are very few.”
The advisor thinks that the Banks that understand Latin America “are very few”. From Andbank, he said, “we understand the way of thinking, we are not in a hurry and we invest for the long run”. In his opinion, the bank has a competitive dynamic which is going to continue positioning the bank in the sector. At this point, he mentioned that, through the Columbus Asset management company, located in Mexico, where the bank used to acquire fifty percent of the ownership in 2008, that the business does not grow less than twenty-five percent each year.
“From an organic point of view, there has to be a 20% growth rate and buy things that are not too big.”
“In this market, the banks that are moving slowly leave us an excellent space in the private banking area, which is our core business. We compete in terms of speed and talent,” he emphasized.
In terms of the bankers’ profile, Comas said they have, “the best of the best in profitability. There are people older than 45 years old with experience of 15 or 20 years in the sector that participate in an exciting and ambitious project.”
“The crisis is going to hit the Banks that are not going to be able to adapt”
The executive recognized that according to today’s environment in this sector, “the crisis is going to hit the banks that are not going to be able to adapt,” as well as Andback having the opportunity to change and become a reference bank. “The transition had to be done, it is going to bring an expansion which will change the buesiness.”
If they want to buy other banks in order to grow, the executive recognized that therewill be more acquisitions in private banking, but he emphasized that it will be done in a planned way. “If you are not skilled, you will end up losing. From an organic point of view, we have to grow 20% per year and buy things that are not too big.”
Comas explained that every office that they open complicates the business because the bank is multi custody and multijurisdictional, which allows custody for third parties. Today the Bank has more than 650 in its payroll, from which half of this number is from employees located outside Andorra.
In terms of the type of client that the bank has in Latin America, it has a portfolio between US$7/10 million, a client with more than the average that the bank has in Europe.
Comas has a Bachelor’s degree in Economics and Business from the Autonomous University of Barcelona and an MBA from the Wharton School of the University of Pennsylvania. He started his professional career as co-founder and Chief Executive Officer of the publishing house Tibidabo Editions in 1984. Before starting to work in Boston Consulting Group in 1991, he worked for two years in the Research Area of La Caixa.
. Merrill Lynch Wealth Management nombra a Ashvin Chhabra nuevo CIO
Merrill Lynch Wealth Management today announced that Ashvin Chhabra is joining the firm as chief investment officer, head of Investment Management and Guidance (IMG). In his role, Chhabra will oversee the delivery of investment advice and strategy to Financial Advisors and their clients. He will also lead the IMG manager due diligence, investment analytics, and investment guidance teams, as well as the Ultra High Net Worth (UHNW) Investment Office.
Chhabra served as Merrill Lynch’s head of Wealth Strategies and Analytics between 2001 and 2007. During his time at Merrill Lynch, Chhabra delivered pioneering work to link behavioral finance to portfolio construction, the foundation of Merrill Lynch’s ability to deliver goals-based wealth management solutions to its clients.
Chhabra most recently served as the chief investment officer at the Institute for Advanced Study in Princeton, N.J. During his six years at the Institute, he worked closely with the Institute’s Board of Trustees’ Investment Committee, which is chaired by James H. Simons, founder of Renaissance Technologies.
Prior to joining Merrill Lynch in 2001, Chhabra was head of Quantitative Research at J.P. Morgan Private Bank. He holds a Ph.D. in applied physics from Yale University and is recognized as a leader in the fields of investment management, risk and asset allocation, and risk management. Chhabra is a frequent lecturer at leading universities and a board member of numerous academic and industry groups.
By MJaundoo1 . Sabadell United Bank appoints two new employers for their local network
Sabadell United Bank today announced that Louis-Albert H. Jolivert has been named a senior vice president at the bank’s headquarters at 1111 Brickell Ave. In this position, he will be responsible for working with professionals and entrepreneurs in order to help them meet their financial goals. Prior to joining Sabadell United Bank, Jolivert served as senior director of BNY Mellon Wealth Managementat BNY Mellon Financial Corporation and was also a vice president at JPMorgan Private Bank in Miami.
Jolivert holds a number of volunteer leadership positions throughout the Greater Miami community. He currently serves as the treasurer of the Miami Finance Forum and is the immediate past chairman of the board of trustees at The Miami Foundation. He is also a member of the Miami-Dade Cultural Affairs Council and the Knight Foundation’s Community Advisory Committee.
Sabadell United Bank also announced that Patrick Morris has been appointed vice president, professional banker. He will work out of the bank’s Dadeland Banking Center and is responsible for serving business professionals in meeting their financial goals. Prior to joining Sabadell United Bank, Morris served as the vice president and chief development officer at the YMCA of Greater Miami. Before this, he was the co-founder, president and CEO of Hands on Miami, a broad-based community outreach program.
Sabadell United Bank, headquartered in Miami, Florida, is a locally-managed, nationally-chartered banking institution. The bank has 23 locations throughout the state, serving more than 40,000 clients, and is the fifth largest bank in Florida by deposits. Bauer Financial Reports recognized the financial strength of the bank by awarding it a five-star rating, the highest available. Sabadell United Bank is recognized as the trusted financial advisor for professionals and businesses as well as domestic and international high-net-worth individuals.
One Thousand & One Voices (1K1V), a movement of influential families investing relational, intellectual and patient financial capital to profitably accelerate prosperity in developing markets, today announced its formation. The announcement is being made in Cape Town in conjunction with the World Economic Forum on Africa.
Influential families conceived of 1K1V to help increase economic opportunity for families in developing markets. Each family’s capital is three-dimensional: relational capital leverages member family connections and reputation, intellectual capital leverages their business and industry knowledge, and patient financial capital provides the funding that developing-market businesses need to grow.
“One Thousand & One Voices was established with the belief that the pathway to economic freedom — real prosperity for millions living in poverty — is through values-based private investment grounded in the time-tested principles of free enterprise,” said Dr. John Coors, chief executive officer of technical ceramics company CoorsTek and one of the movement’s initial family members.
1K1V’s model was designed to provide financial capital that is sufficiently patient to accelerate prosperity in developing markets, addressing a major shortcoming of traditional private equity and many impact investment funds operating today. 1K1V does not impose arbitrary limits on the duration of its investments, making it possible to provide capital that is as patient as may be required, which reduces the risk of impaired returns due to forced exits.
1K1V intends to deploy $300 million in sub-Saharan Africa and similar or larger amounts in other geographies. Although 1KIV’s initial focus is sub-Saharan Africa – a region now experiencing robust economic growth but one that carries a substantial legacy of poverty, inefficiency, and undercapitalization – the movement is expected thereafter to focus on Latin America, Southeast Asia and Eastern Europe. 1K1V expects to use leading edge, proprietary tools to predict, measure and report impact.
“This movement emphasizes that a larger private-sector role in developing markets will profitably accelerate prosperity, and I strongly believe that One Thousand & One Voices’ three-dimensional capital model positions it for long-term success where other initiatives have fallen short,” said Hendrik Jordaan, president and chief executive officer of 1K1V. “I believe that One Thousand & One Voices fundamentally re-defines how private equity and leading families can drive prosperity in developing markets.”
“Capitalism and business done well – not socialism or philanthropy – is the only proven path for economic development to lift multitudes from poverty,” said Dr. Coors. “People in Africa are yearning for jobs. Only business can create an expanding jobs base, but business can only succeed if it has investment, and investment will come only if the returns warrant the risk. I believe today they do, and that is why my family has become involved in the One Thousand & One Voices movement.”
1K1V is comprised entirely of influential families with experience and potential influence in sectors that will be accretive to 1K1V’s investment objectives, and in part to represent a diversity of strategic regions around the globe. The movement employs a unique membership program to facilitate collaboration among families, particularly next generation family members.
“I became involved with One Thousand & One Voices with the recognition that private equity serves a very valuable purpose in developing markets, and also that this is a wonderful way to introduce my family to private equity investing,” said Charles Widger, founder and executive chairman of Brinker Capital, a Berwyn, Pennsylvania-based investment management firm, and a 1K1V founding family member. “A significant challenge for many families is educating the next generation on investing their money, and One Thousand & One Voices provides a strong framework for meeting this challenge.
“Many developing markets are now progressing economically and socially at rates never before seen in their histories, providing a good foundation for private sector investment to build upon,” said Don Gips, former US Ambassador to South Africa. “As these economies are still developing, building sound, successful, job-creating businesses that will capture the full market potential requires a long horizon, creating a critical need for highly patient capital.”
Foto: Hayden Briscoe, Director Asia Pacific Fixed Income de AllianceBernstein. Las incertidumbres sobre China no detendrán la subida del Renminbi
Recent data releases and the transition to new political leadership have created some uncertainty about China’s short-term economic outlook. While positive growth surprises are unlikely in 2013, we still think nothing can stop the long-term appreciation of China’s currency, the renminbi (RMB).
The reason we expect the RMB to continue to appreciate lies in the strength of the structural, as distinct from cyclical, factors which should continue to support it in the medium to long term. The currency’s prestige, tradability and valuation bolster our expectations that the RMB will:
Appreciate by 2% to 3% a year on average, just to keep pace with the country’s persistent trade surpluses, and by up to 5% a year once economic rebalancing is factored in
Become fully convertible by the time the current five-year economic plan expires in 2015—much faster than widely expected
Emerge as a core reserve currency, especially in the Asia-Pacific region and other emerging markets
China is the second-largest economy in the world. It’s also one of the most dynamic, with the gap between the Chinese and US economies in purchasing power parity terms expected to close in just a few years (Display). Global trade flows don’t yet reflect this reality and continue to be settled mostly in US dollars.
But there are signs of change. In July 2010, the Chinese government began a move to internationalize the currency by opening an offshore currency (CNH) market based in Hong Kong. Taiwan followed recently, and Singapore and London are next on the list. This will help facilitate RMB trade settlements in time zones around the world.
The proportion of China’s global trade settled in RMB has grown to 11% and continues to rise. China’s banks are supporting the trend through the provision of trade finance: letters of credit denominated in the onshore currency (CNY) now account for the third-largest share of the global total, behind US dollars and euros and ahead of yen. By 2015 one-third of China’s exports are likely to be denominated in RMB, with annual trade-settlement volume expected to hit nearly US$2 trillion, according to HSBC.
RMB-denominated trade flows are increasing in strategically important markets, in Africa and Latin America in particular. They’re also rapidly becoming institutionalized. To date, 20 central banks have agreed on CNY swap lines with the People’s Bank of China (PBOC) totaling RMB2 trillion or US$320 billion.
Portfolio flows are another potential driver of the RMB’s internationalization, as China’s capital markets open up. For example, the Chinese government bond market is capitalized at around US$2.5 trillion. It’s the third largest in the world, equivalent to the German and French bond markets combined. If included in a traditional bond index, investors would be forced to commit 10% to 12% of their fixed-income allocation to Chinese government bonds. This, together with the continuing strength of overseas direct investment into China, further facilitates the RMB’s internationalization.
We expect China will do what it can to make full internationalization of the currency a reality. This will include maintaining the RMB’s credibility as a steadily appreciating currency. Given that the RMB’s appreciation sharply lags the US$2.5 trillion growth in China’s foreign exchange reserves since 2005 (Display), we think this is a realistic goal.
The RMB already fulfills two of the three criteria necessary to become a reserve currency—the size of the underlying economy and the credibility of the currency itself. It is progressing steadily towards fulfilling the third criteria, which is openness and financial-market depth. Internationalizing the currency is one of the goals under the country’s five-year plan and, in early September 2012, Dai Xianglong, a former PBOC governor, said that China could liberalize its capital account as early as 2015. While the precise timing will depend somewhat on global economic and financial-market conditions, we think the RMB is likely to be internationalized much faster than widely expected.
