Capital Markets Trading and Investment Strategies in China: A Practitioner's Guide

ISBN-13: 9789811341694 / Angielski / Miękka / 2019 / 331 str.

Xiaojiang Zhang

Spis treści

Part 1. Portfolio building blocks covering foreign exchange, money markets, fixed Income and derivatives Instruments

1、Traded Foreign Exchange Instruments

a) Onshore CNY FX instruments

i. The markets, currency pairs traded and various market convention. 

ii. FX Spot

iii. FX Forward

iv. FX Swap

v. FX Option

vi. The pricing mechanism in the onshore wholesale market and retail market.

b) Offshore CNY/CNH FX Instruments

i. The markets, currency pairs traded and various market convention. 

ii. Deliverable vs. NDF

iii. FX forward trade

iv. FX Option

v. The pricing mechanism in the offshore wholesale and retail market

c) The capital flow and pricing transmission between Domestic CNY market and offshore CNY/CNH market

2、Traded Money Market Instruments

a) Onshore CNY Market

i. Diversified participants

ii. Liquidity and historical development

iii. Short maturity domination

iv. Instruments traded

1. Repo and Reverse Repo

2. Loan Deposit

3. Sec Lending

4. Cross-border CNY financing with Loan/Dep

5. CD

6. MM fund

v. Different MM indices: SHIBOR, Repo

b) Offshore FX management

i. Instruments traded

1. Repo and Reverse Repo

2. Loan Deposit

3. Commercial Paper

4. Short treasury securities

5. CD

6. FX Swap

ii. Transaction initiation channels

1. Loan/Deposit with Reuters and other terminals, Broker quotes, Counterparty quotes

2. FX with Reuters and other terminals, Counterparty quotes

3、Fixed Income Instruments market condition, pricing mechanism, quoting and settlement convention

a) Instruments by issuers

i. Government Bond

ii. Local Government Debt

iii.

Policy Bank Bond

iv. Commercial Paper

v. Short Commercial Paper

vi. Central Bank Bill

vii. Corporate/ MTN

viii. ABS.

b) Instruments by cashflow structures 

i. Fixed rate bond

ii. Floaters

iii. Option-embedded bonds

iv. Convertibles

v. Small-and-Medium Enterprise Collective Notes (SMECN)

vi. High yield

vii. Asset-Backed Securities 

c) Market condition and trading convention

i. Exchange, interbank, and retail market

ii. Regulatory regime for the fixed income market place 

iii. Participants distribution for trading

iv. Investment community distribution

d) Specific Interbank market vs. Exchange market differences 

i. Liquidity and issuance

ii. Player participation and risk appetite 

iii. Leverage usage

4、Derivatives market condition, pric

ing mechanism, and trading convention

a) Swaps

i. Instrument definition, indices and application

ii. Participants and trading liquidity

b) Bond Futures

i. Contract definition and Instrument application

ii. Cheapest-to-deliver and IRR

iii. On-the-run bonds

Part 2. Macro Economics, Monetary Cycle, Industry Cycle, Monetary Condition, Supply and Demand

5、Macro cycle

a) Import/Export cycle, Trade Balance, PMI Index

i. GDP and growth contribution 

ii. Export dependency, market distribution, surplus and TPP

iii. PMI relevance, pork price and others

b) Real Estate Cycle 

i. New construction, sales and existing inventory

ii. GDP and growth contribution

c) Government-driven Investment

i. Government spending and its history

ii. Budget deficit constraint and real estate-dependency

d) USD Cycle

i. Global monetary condition and funding cost

ii. Global exchange rate fluctuation and impact on commerce

6、Industry cycle

a) Industry classification and their unique Chinese characteristics

b) State-owned vs. Private-owned

7、Monetary cycle

a) M2 growth rate, 10 year bond yield, 7D and 1M repo rate

b) M1, M2, and Total Social Financing

c) Quantity vs. pricing target signal 

d) Monetary liquidity quantity: reserve ratio

e) Monetary liquidity price target: Repo Rate

8、CFETS (China Foreign Exchange Trade System)

9、China Banking Regulatory Commission and Interbank market

10、China Securities Regulatory Commission and exchange markets

Part 3. Applied Pricing Curve in the Market and Term Structures

11、Curves and Term Structures

a) FX curves and swap points

b) Money market curves

c) Government bonds and interest rate term structure

d) Tax spread curve and policy bank bonds

e) Credit spread curve by rating and industry

f) Swaps curve

g) Bond future IRR, contract spread and roll-over

12、In-depth on factors driving onshore FX and money market curves

a) Monetary policy-driven supply policy factors

i. Reserve Ratio, Open Market Operation, Discount Window

b) Non-monetary policy-driven supply factors

i. Funds outstanding for Foreign Exchange

ii. Treasury Deposit

c) Structural factors

i. Regulatory fund requirement compliance

ii. IPO and other investment flows

iii. Bank fund instability

d) Seasonal issues and market expectation

i. Consumer seasonal spending pattern

ii. Market expectation for fund shortage

e) In-depth on factors driving fixed income portfolio return and risk curve p

arameters

i. Cross-border monetary inflow and outflow

ii. Domestic monetary supply

iii. Product supply and demand

iv. Asset allocation effect vs. money available

v. Risk appetite

vi. Cost of funds

vii. Credit allocation limits and industry policy issued by government

viii. Bond future net basis, implied Repo Rate and Cheapest-to-Deliver conversion optionality

f) MTM basics for listed capital markets products.

Part 4. Regulatory Regime and Some Policies in Focus

13、Central bank’s various objectives and its balance sheet analysis

a) Objectives: Economic growth stability; Supply Side Reform

b) Liquidity injection working mechanisms: 

c) SLO (Short-term Liquidity Operations)

d) SLS (Standing Lending Facility)

e) MLF (Mid-term Lending Facility)

f) PSL (Pledged Supplementary Lending)

14、Foreign exchange trading regulation: mid Pricing guideline. 

15、Fixed income trading regulation: leverage ratio, collateral financing

16、ABS and its related regulation

17、Currency account and capital account market liberalization

Part 5. Other Participants 

18、Fixed income institution players, market making participation

a) Banks: 3-tiered banking systems, balance sheet, number of retail outlets, and cost of funding.

b) Mutual fund, tax policy, and carry advantage

c) Insurance companies and long investment horizon

d) Foreign financial institutions

e) Private equities, a growing presence

19、FX trading players

20、MM players

Part 6. Portfolio Objectives and Trading and Investment Strategies

21、Onshore CNY Liquidity Portfolio Management

a) Asset liability management

b) Reverse management

ecasting

d) Trading management for maturity, price, counterparty, direction, position

e) Support for central open market operations

22、Offshore FX Liquidity Portfolio Management Strategy Objectives

a) Pricing factors

i. Level of the base rates for different maturities

ii. Market supply and demand

iii. Credit condition

iv. SAFE short term foreign debt limit

b) Tactical objectives

i. Tactical liquidity objectives for banks

ii. Position forecast and fund allocation

iii. Maturity adjustment

iv. Currency position adjustment

v. Short term investment

vi. Dealing with central bank

vii. Liquidity management

23、Trading accounts FX MTM and Strategies

f) FX Strategies

g) Trade-financed CNY CNH interest rate arbitrage

h) Cross-rate wash split strategies 

24、Trading accounts bond strateg

ies

i) Leveraged carrying trade on the exchange and in the interbank market

j) Bull bear duration and rating strategy

k) Term spread mean-reverting strategy

l) Tax spread strategy

25、Bond future net basis strategy and negative implied repo rate 

a) Net basis strategy

b) Implied repo strategy

c) CTD conversion strategy 

d) On-the-run, existing issuance and tax spread 

e) Domestic market's short sale implication

26、Investment Accounts Objectives and Strategies

a) Some basics

b) Cost of fund

c) Asset liability management objectives

d) Garden variety of portfolio objectives and investment strategies 

i. Return before tax and return after tax

ii. Newly-added investment yield

iii. EVA

iv. RAROC

v. Portfolio duration and risk management

vi. Sector duration and risk m

anagement

vii. Total portfolio Profit & Loss

e) Insurance companies long end ALM strategies

f) Mutual Fund investment, a mixed asset pool to start with

g) Foreign banks' short duration and carry trade

h) Off-balance sheet wealth investment, a 3 trillion USD and still growing sector

i) Trust-based High Yield Regulatory Arbitrage strategy, a substantial sector with limited potential

j) Asset-backed securities investment, regulatory capital advantage, risk diversification, and yield enhancement

k) Convertible strategy and callable implications 

Part 7. Risk Management Practice

27、Trading Accounts Limits Allocation

a) FX PV01 allocation

b) IR DV01 allocation

c) Single transaction notional limit

d) Maximum loss limit 

e) Maximum position limit

28、Investment Accounts Credit Allocation Practice

a)

Credit limit by counterparty

b) Credit limit by issuer

c) Credit limit by lines of desk management

29、Investment Portfolio Term Duration Management

O autorze

Xiaojiang Zhang worked at various large global financial institutions in the areas of foreign exchange, fixed income, derivatives trading and portfolio management. Author of Capital Markets Trading and Investment Strategies in China published by Springer in 2018. Author of Mechanical Analysis of China's Macro Economic Structure published by Springer in 2020. Two times top economic think tank award winners.

Blurb

This book covers in detail the building blocks of Chinese capital markets at the financial instrument level, the analytical pricing term structure of those instruments, the macro and industry economic framework and progress of the liberalization processes at work in the respective markets, the interaction of various participants in the markets, their trading and investment objectives and rationales, some of the most frequently applied trading and investment strategies, and risk management techniques. The book will especially benefit financial practitioners with in-depth knowledge of their respective capital markets area regarding foreign exchange, money markets, fixed income, and related derivatives, and who have a keen interest in gaining deeper insights into the Chinese market so as to develop or strengthen their global strategy application and risk management practice.