Hong Kong and Macau have established a direct linkage between their clearing systems, a move which may not significantly boost bond supply but will be strategic for both cities' market development.
The arrangement will link Hong Kong’s central moneymarkets unit (CMU) with Macau’s central securities depository. Investors who have accounts with CMU will be able to clear, settle and hold bonds lodged with Macau’s CSD, while those with accounts at Macau’s CSD can also access bonds lodged with CMU. Details and the implementation date are yet to be set.
The two governments said in a joint press release last month that the linkage marks “a new milestone in the financial co-operation between Hong Kong and Macao, signifying far-reaching implications for the synergistic development of the core cities in the Guangdong-Hong Kong-Macao Greater Bay Area”.
The move will help Macau, which has a smaller and less established capital market than its neighbours, to leverage the liquidity and the infrastructure in Hong Kong to support its own development.
As of August, only 16 bonds outstanding were on Macau's CSD system, among which four were issued by China’s ministry of finance and four by the government of Guangdong province, according to data from Macao Central Securities Depository and Clearing. As of September, a total of MOP$733.4bn (US$91.6bn) of bonds were listed on the Macau stock exchange. In the January-March quarter alone, 80 bonds with a face value of US$134bn were issued and listed on the Hong Kong exchange.
Macau has made several pushes in recent years, following the Chinese government's first offshore renminbi issuance of "Lotus bonds" in the city in 2019.
In 2021, Macao Central Securities Depository and Clearing became fully operational, and the Guangdong-Macao In-depth Cooperation Zone was established in the same year. The Guangdong government has been offering subsidies up to Rmb5.5m (US$778,950) to mainland corporates which issue bonds in Macau.
The new tie-up is unlikely to significantly boost the deal supply in Macau, a city that has long been relying on its gaming industry. Chinese bankers see little reason for Chinese corporates or local government financial vehicles to issue bonds in Macau instead of Hong Kong.
“I don’t see much real impact. We may see a few politically driven transactions like those Yulan bonds,” said the banker. There have been only five Yulan bond deals, which are sold through a connection between Shanghai clearing house and Euroclear, since the establishment in 2020, according to IFR data.
Another syndicate banker said more deals may come depending on how the linkage will be implemented, and said the connection will be helpful in bringing in more investors as many of them are already familiar with Hong Kong's CMU. He pointed out that some supply could come from Chinese banks’ Macau branches.
Macau may have less to offer to Hong Kong, but it will still be an important addition to CMU's linkage network, which currently has partnerships with Austraclear, China Central Depository & Clearing, Korea Securities Depository, Shanghai Clearing House and Taiwan Depository & Clearing Corp. It is also CMU’s first linkage built on Chinese bonds outside of mainland China, enhancing the city's role of super-connector, bridging China and the global market.
"This could be the first step of CMU starting to build a network of links with CSD in the region or beyond, and creating a network for Chinese bonds and Chinese issuers, so that investors and issuers in Chinese bonds will be more dispersed and broader,” said Philippe Dirckx, head of fixed income at the Asia Securities Industry & Financial Markets Association. “It will be a big step in the direction of the internationalisation of not only renminbi but also Chinese governments bonds.”
He said a bigger network would facilitate international investors in buying Chinese assets, Chinese issuers in issuing bonds in various jurisdictions or international borrowers in issuing renminbi-denominated bonds in different jurisdictions while tapping Hong Kong as the liquidity hub, which will be “a game changer” for the city.