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About Tim

China

+25 year(s) experience

Tim Cheung, Head of China products, IGM, headshot
Tim Cheung heads up IGM’s China products, keeping screens updated with the latest trading strategies, often adopted by hedge funds and institutional investors.

Since 2000, he has been working with IGM to develop a range of Chinese language products for mainland China and Hong Kong. In his current role, he’s responsible for all the China content including IGM's Chinese language services. He provides key insight on the CNH/CNY markets as well as flow commentary on the emerging Asian FX market and Asian credit.

Tim joined us in Hong Kong in 1995 from MMS International. Before that he worked in the banking sector.

Tim has a bachelor’s degree in economics from Wolverhampton University.

Analyst Articles

Articles by Tim

  • IGM Credit, IGM FX and Rates

    China Insight: Messages From NPC Are Less Dovish Than Expected

    China Insight

    The NPC ended on Thursday (28 May). In the post-NPC press conference, Premier Li Keqiang gave a couple of remarks: - China will not hesitate to loosen policy more if needed. The focus of the policy loosening is not on infrastructure but on consumption. It's worth noting that Premier Li, unlike in the past, this time didn't say he would maintain ample liquidity in the financial system. - Premier Li Keqiang did not agree with the market's statement that the planned policy package is not strong enough. He said the magnitude of the policy package is reasonable, indicating low possibility of aggressive stimulus in the near term. Overall, Premier Li's remarks reflect central government's intention to avoid being too dovish in the aftermath of COVID-19.

    Topic Industry News

  • IGM Credit, IGM FX and Rates

    China Insight: NPC Announced Smaller-Than-Expected CGSB Issuance

    China Insight 0520

    The NPC meeting officially kicked off in Beijing (22 May). There, Premier Li Keqiang announced: - a CNY1,000bn issuance of central government special bonds (CGSB), versus the market consensus of CNY2,000bn - a CNY3,750bn issuance of local government special bonds, versus last year's CNY2,150bn and a market consensus of CNY3,500-4,000bn - a rise in fiscal deficit-to-GDP ratio target to 3.6%, vs last year's 2.8%.

    Topic Industry News

  • IGM Credit, IGM FX and Rates

    China Insight: After a Strong Sell-Off, Bonds Look Attractive Again

    China Insight 0514

    The bond market got sold off sharply in the first half of May, regardless of the stable liquidity. We attribute the sell-off partly to mounting supply pressure and partly to the market being overly crowded with long positions.

    Topic Industry News

  • IGM Credit, IGM FX and Rates

    China Insight: CNH is Showing Last Bit of Strength

    China Insight

    On 7th May 2020, PBOC and SAFE officially issued the "Measures on Capital Management of Foreign Institutional Investors Investing in Securities and Futures in China". The key features of this policy are summarized below: The quota mechanism for QFII/RQFII is abolished; Foreign institutional investors can remit in foreign currency (FCY) or Renminbi (RMB) or both depending on their investment needs, and open the corresponding FCY and RMB accounts. Restrictions on custodian appointment no longer exist. That means the foreign institutional investor can appoint multiple custodians based on their business needs. Foreign institutional investors can choose to provide the tax commitment letter for each profit repatriation, or provide a onetime tax commitment letter stating covered period and the cumulative profit amount for repatriation. The new policy will come into effect on 6 June 2020. As per the state-owned media, the removal of the quota restrictions on QFII, RQFII is aimed at boosting financial opening. But we believe it, to a certain extent, is more or less driven by policymakers' concerns over FX reserves adequacy. Chart 1 shows that China's FX reserves have been failing to increase further since reaching USD3119bn in summer last year. With monetary easing underway, more FX reserves are needed, otherwise it will be increasingly difficult for PBOC to stabilize RMB FX. It's worth noting that the USD30.9bn increase in FX reserves in April was still far from big enough to offset the USD46.1bn decline in March.  

    Topic Industry News

  • IGM Credit, IGM FX and Rates

    China Insight: Scenario of Local Govt Bond Supply Before NPC

    China Insight

    Beijing announced that the National People's Congress (NPC) will commence its annual meeting on 22 May, after being postponed from 5 March due to the COVID-19 outbreak. Nobody is sure if the year 2020 GDP growth target will be announced there given the deep downturn in Q1. If a target is given, we guess it is going to be at an achievable level, say 3% or slightly lower. No matter whether a growth target will be given, we will definitely see a bigger fiscal budget deficit number and higher CPI target in the annual Government Work Report (GWR) announced at the NPC. We expect a significant increase in the headline fiscal budget deficit to 4.5% or even 5.0% of GDP in 2020, from the budgeted 2.8% in 2019, given a declining fiscal revenue and an expanding expenditure. Meanwhile, a quota of special local government bond issuance at CNY3.5tn (not surprising if’s as high as CNY4tn) will be given. Moreover, the CPI inflation target will likely be raised to 3.5%. In regard to local government bond issuance, we expect to see a huge supply of local government bonds in May after an issuance of CNY1000bn local government special bonds (i.e. the third batch of local government special bonds for 2020) was announced. In April this year, we saw a seasonal decline in local government bond supply, which will be followed by an increase in May and June (chart 1). Repeating its pattern in previous years, supply will remain abundant in Q3, we believe.  

    Topic Industry News

  • IGM Credit, IGM FX and Rates

    China Insight: Short-Term CGBs Look Cheap Ahead of 5/1 Holiday

    China Insight

    The 5/1 holiday is coming which is the first long holiday after the COVID-19 came under control in mainland China. Historically, liquidity tightening would be emerging during the third week of April on the back of holiday-related cash demand from both individuals and business entities. However, this kind of liquidity tightening is not happening this year (chart 1). We think consensus in the market is that Beijing definitely will ensure the banking system is equipped with enough liquidity during the holiday. We won't be surprised if PBOC resumes liquidity injection via OMO right before the holiday starts on 1 May.  

    Topic Industry News

  • IGM Credit, IGM FX and Rates

    China Insight: PBOC Makes Consistent Efforts to Lower Funding Costs

    China Insight

    PBOC on 15 April injected CNY100bn of liquidity into the banking system via the 1-year medium-term lending facility (MLF) at a rate of 2.95%, 20bp lower than the previous operation conducted in mid-March. This move was regarded as a partial rollover of the CNY200bn MLF which fell due on 17 April. On top of this MLF injection, the first batch of 50bp targeted RRR cut also came into effect on the same day, releasing another CNY200bn into the interbank market. Post the withdrawal as a result of the MLF falling due on 17 April, last week saw a net increase in liquidity by CNY100bln. Doubtless, a 20bp cut in the MLF rate was a bit unexpectedly aggressive. However, a partial rather than total rollover of the CNY200bn MLF falling due on 17 April reflected PBOC's unwillingness to allow the system to be equipped with too much liquidity. In the interbank market, funding costs have been trending downward further since the 1-year MLF liquidity injection at a lower rate was announced. Year-to-date, the PBOC has cut the 7-day reverse repo rate and MLF rate by 30bp (chart 1). However, in the same period, interbank 7-day repo rate and SHIBOR in the same tenor have fallen by 140bp and 110bp respectively. Given the pressing need for a recovery of the economy which has already been badly hurt by the COVID-19 outbreak, PBOC has been working very hard to bring the funding costs lower. For the sake of the economy, PBOC has to reduce the borrowing costs not only for business entities and individuals, but also for the central government which, in order to support the growth, has already decided to have a substantial increase in infrastructure investment via debt financing. Chart 2 shows just in Q1 government bond and government-guaranteed bond issuances have increased 65% y/y and 246% y/y respectively.  

    Topic Industry News

  • IGM Credit, IGM FX and Rates

    China Insight: Yield Curve Steepens After IOER Reduction

    China Insight

    PBOC announced on 3 April plans to lower (chart 1) the reserve requirement ratio (RRR) for small banks (mostly rural banks and small-sized city commercial banks) by 100bp. It will be implemented in two rounds (50bp each) with the first round coming into effect on 15 April and the second on 15 May. After the cut, the RRR at these small institutions will fall to 6.0% (versus around 11% for big banks and 9-10.5% for medium-size banks). This RRR reduction will release a total of CNY400bn liquidity, and lower those banks' annual funding costs by about CNY6bn. In addition, PBOC also announced a reduction in the interest rate on excess reserves (IOER) from 0.72% to 0.35%. That is the first excess reserve rate cut since 2008, aiming to encourage banks to reduce their excess reserves at the PBOC and expand bank lending. Note that banks' excess reserve ratio stood at 2.4% at end-2019.      

    Topic Industry News

  • IGM Credit, IGM FX and Rates

    China Insight: Potential Scenario of Special Bond Supply

    China Insight

    The Politburo Meeting on 27 March hinted at a big stimulus package ahead. The meeting stated that macro policy loosening should be stepped up to boost domestic demand and achieve the "Six Stabilities" (stable employment, trade, financial markets, investment, foreign capital, and expectations). Specifically, the central government will issue a batch of special government bonds (SGB), and the local government special bond (LGB) quota will also be enlarged. In addition, the meeting called for accelerated issuance and use of local government special bonds, speeding up the preparation and construction of large and important infrastructure projects and better implementing the reduction of taxes and administration fees. We expect the government to raise the budgetary deficit to 3.5% of GDP from the previously 3.0% and lift the tax and administration fee target to CNY2.5tn from CNY2tn realized last year. Regarding off-budget items, we expect special local government bond issuance to rise to CNY3.5tn from CNY2.15tn in 2019. Meanwhile, the statement of the PBOC 1Q meeting on the same day also put a great priority on assisting a firm recovery of the real economy and pledged to increase support to SMEs and the private sector. PBOC wants to see the loan prime rate (LPR) play a more important role in lowering real funding costs.      

    Topic Industry News

  • IGM Credit, IGM FX and Rates

    China Insight: Bond Inflows Pick Up Amid Weak Economy

    China Insight

    As Emerging Markets go into recession, EM policymakers have rapidly deployed a broad range of support measures with more to come, but it remains to be seen how effective these will be in mitigating the EM growth hit. As far as China is concerned, negative GDP growth in Q1 looks unavoidable. The most pessimistic estimate in the street is -9%. For the full-year GDP growth, the revised estimates in the street fall between +1% and +4%. In light of the gloomy economic outlook, Beijing definitely will step up stimulus. Now a cut in the benchmark deposit rate is on the cards, which could be a more meaningful means to boost retail consumption. With interest rates trending downward, onshore government bonds and policy bank bonds have kept rallying recently on the back of strong buy-and-hold demand (chart 1). The latest data suggests the China bond market saw USD11bn of net inflows from foreign investors in February, up from only USD2bn in January (chart 2). Among the paper which is already or being included in the major global government bond indices, policy bank bonds (PBBs) registered a bigger increase in foreign investors' portfolios than China Government Bonds (CGBs). Of the USD11bn of net inflows in February, USD5bn was taken by PBBs, USD4bn by CGBs with the remainder by negotiable certificates of deposit (NCDs) and medium-term notes (MTNs).      

    Topic Industry News

  • IGM Credit, IGM FX and Rates

    China Insight: What Does Recent IRS Curve Steepening Imply?

    China Insight

    China's activity growth data for February were much weaker than expected, suggesting there is a very good chance the Q1 GDP y/y will fall into negative territory. Among forecasts from major investment banks, the most pessimistic ones for China's Q1 growth y/y are now in the -7/-9% range instead of +2/+3% territory seen a month ago, while that for the 2020 full-year growth are in the +1/+3% area rather than +4/+5%. To avoid the economy worsening further in the aftermath of the COVID-19 outbreak, Beijing inevitably has to ramp up fiscal spending substantially over the rest of the year. Given the postponement of the National People’s Congress (NPC) meeting which was initially scheduled for early March, we so far have no official data on how much the government will spend in 2020. However, with the onshore CNY IRS curve steepening sharply recently (chart 1), we doubt the potential increase in government expenditure will be small. Meanwhile, we reckon most (if not all) of the extra spending will be financed by the issuance of special bonds, in particular, the long-term ones. As per chart 2, special bond issuance increased substantially in Jan and Feb, which may be setting a trend for most of the year.      

    Topic Industry News

  • IGM Credit, IGM FX and Rates

    China Insight: Bullish on CGBs as RRR Cut in Sight

    China Insight

    Chinese Premier Li Keqiang held a State Council meeting on 11 March. Two key signals were released there: Speed up credit supply to industries and enterprises. Implement targeted cuts in reserve requirement ratios (RRRs) The signals are very clear, so we will see further liquidity loosening in mainland China in the near term. We expect a targeted RRR cut will be announced very soon. Needless to say, further reduction of loan prime rates (LPRs) will also happen at the regular fixing on 20 March. In regard to the China government bond (CGB) trading strategy under the prevailing environment, we here reiterate our bullish view.      

    Topic Industry News

  • IGM Credit, IGM FX and Rates

    China Insight: Refinancing Pressure on Property Developers Mounts

    China Insight

    It is still too early to say whether the COVID-19 outbreak will be effectively contained by the end of Q1. However, it’s quite certain that Chinese property developers will not see a significant recovery in sales over the rest of this quarter. In the USD bond market, Chinese IG property names saw credit spread tightening after PBOC made a huge liquidity injection and lowered reverse repo rates as soon as the extended LNY holiday was over. As far as Chinese HY property names are concerned, we saw their short-dated papers well absorbed by the market as soon as they were launched in the primary market. All these seems to suggest the developers' balance sheets are barely impacted by the sharp decline of sales. However, if we look at their refinancing schedule more closely, we may doubt such a resilience will be sustained.      

    Topic Industry News

  • IGM Credit, IGM FX and Rates

    China Insight: Credit Bonds Will Play Catch up on More Supportive Measures

    China Insight

    The authorities, MOF, PBOC and CBIRC, hosted a joint conference on Feb 7 to provide an update on supportive policies in light of the coronavirus situation. We believe the conference delivered a loosening bias tone as a nimble response to the virus outbreak. Next move following the huge liquidity injection and provision of first batch of special relending funds to more than a dozen of banks is going to be an LPR cut on 20 Feb. We expect a 10bp cut in both 1-year and 5-year LPRs on 20 Feb (chart 1), similar to the magnitude of the latest OMO rate cut. A more sizable cut may mean the policymakers are opting for more aggressive monetary easing to cushion the economic shocks arising from the coronavirus outbreak.      

    Topic Industry News

  • IGM Credit, IGM FX and Rates

    China Insight: How Does The Coronavirus Outbreak Impact Yield Curves?

    China Insight

    With the coronavirus outbreak still evolving, the market signal is clear: less growth and more accommodative policy in China. Further to our forecast given in the previous issue of China Insight that "China will only achieve 4.8-5.3% GDP growth in 2020" because of the disaster, we in the current issue present our view on how the yield curves in China are being impacted. The broadening of the coronavirus outbreak in China, the lockdown of Hubei province and the extension of LNY holiday have already given a hard hit to the manufacturing sector. Due to that, we inevitably will see a fall in PMI indices in Feb and March. At worst, PMI will continue to be under downward pressure over the rest of H1. In our view, some downturn of the manufacturing sector as a result of the disaster is already priced in 5yr IRS, but a drop by 2 to 3 points in PMI from here should still be able to drive IRS much lower to sub-2016 lows. Given the strong correlation between the NBS Manufacturing PMI and 5yr CNY IRS in the past (chart 1), 5yr IRS at 2.55-2.60% appears to have priced a fall in Feb PMI to around 49.0 from January's 50.0. A further decline in PMI to the 48.0 region in March or during the March-April period, in our view, will bring 5yr IRS down further to 2.35-2.45%.      

    Topic Industry News