The Influence Of Hong Kong RMB Offshore Market On Domestic Stock Market

Many RMB offshore markets have been set up in world-class financial centers, including Hong Kong, London, Singapore and Zurich. Overseas RMB capital can flow back into the territory by depending on the back channels of offshore market, which must make influence on domestic stock market. The onshore and offshore markets are different in external environment, players and RMB asset pricing. The stock market is an important financing channel, reflecting the economic situation. Thus, to grasp the impacts on stock market is beneficial to capital allocation and efficient use of public resources. Hong Kong RMB offshore market is close to mainland and it have formed market-oriented interest and exchange rate of RMB.The purpose of this study is to explore the influence mechanisms of RMB offshore market on domestic stock market, including positive and negative effects. Some strategies are proposed to cope with challenges.Firstly, the paper describes the establishing process of Hong Kong RMB offshore market and brief introduction of London and Singapore market. Then, it analyzes Hong Kong’s roles, which are to accelerate RMB internationalization, to broaden RMB back channels and to strengthen cooperation with Southeast Asia. In addition, some data are listed to describe Hong Kong present situation.Of the most importance, the second part analyzes the mechanism, divided into three channels:money supply, arbitrage, and portfolio. It is concluded that the factors have interest rate and exchange rate difference, cross-border trade settlement amount and offshore RMB savings. The yields of onshore stock market and offshore indicate positive correlation and tend to the same in long term. The coefficient is related to tax rates and cost of capital transfer.According to the results of empirical analysis, the low positive relation is indicated between onshore stock market and cross-border trade settlement amount and offshore RMB savings. The relation between onshore bond and offshore bond market index is weak and the latter is the Granger factor to the former.Finally, based on the theoretical and empirical analysis, five policy recommendations are proposed:one is that monetary policy should take into account the factors of offshore market; the second is to establish a prudent monitoring mechanism; the third is the establishment of the Shanghai International bond market; the forth is the development of RMB products; the fifth is the coordinated development of onshore and offshore.