Global markets: HSBC

In 2021, the global economy began to emerge from the shock and turbulence of Covid-19. The complex environment in markets as the world moved from lockdowns back to a semblance of normality was a major challenge for central bank reserve managers, demanding high levels of flexibility, good market knowledge and wise counsel on where global markets might be headed next.

In such an environment, HSBC has demonstrated that it remains an indispensable counterparty to central banks. Clients say the global bank is often the first they call when seeking advice, indicating a level of trust that is the result of years, often decades, of close collaboration. As well as its research expertise and knowledge of key markets – notably China – the bank brings a wealth of skills in other areas, from green finance to exchange-traded funds (ETFs), taps and private placements, and, increasingly, financial technology. This breadth puts it in a strong position to navigate changeable conditions.

ETFs are one fast-growing area of interest for central banks, as many reserve managers look to widen the range of asset classes they invest in.

“We’ve seen interest from central banks across all regions in ETFs,” says Bernard Altschuler, HSBC’s head of central bank coverage.

HSBC has helped a variety of central banks to invest in ETFs, including providing a guiding hand through their first trades. The bank has also partnered with leading asset managers to seed the first trades for new ETFs, and facilitated key initial investments from central banks. One institution that implemented a new portfolio in the past year was the Bank of Latvia, which engaged HSBC to structure an emerging market debt ETF trade. Raivo Vanags, head of market operations at the central bank, says HSBC’s experience proved “instrumental” in putting together a proposal quickly at an attractive price. “It was really a great project,” he adds.

Another area in which HSBC is adept at building bespoke products is taps and private placements. The past year has seen reserve managers invest in the debt of supranationals and agencies to gain higher yields over government bonds. They have also sought to tap into environmental, social and governance (ESG) assets, where limited liquidity can be a challenge.

Ralph Riachi, head of rates sales for Europe at HSBC, says 2021 saw a step-up in demand for taps and private placements. He says that when approached by a central bank, HSBC can put together several proposals for what is achievable, helping reserve managers reach less traditional assets and markets. “This goes beyond access to liquidity, as it requires a certain level of expertise as well as local presence in some cases,” he says. HSBC has arranged numerous taps for central banks in the past year ranging from tens of millions of US dollars to around $1 billion.

Meanwhile, HSBC has remained at the forefront of work on ESG assets. “2021 saw an acceleration in both interest and appetite for green bonds and ESG from reserve managers,” says Mitul Patel, director of institutional rates and foreign exchange sales at HSBC. “HSBC has proven time and again its credentials in this space.”

In 2021, HSBC, in conjunction with JP Morgan, acted as structuring adviser to the UK Debt Management Office on its inaugural green bond issuance – the largest green bond issued by a sovereign. At the launch in September, DMO chief Robert Stheeman thanked HSBC for the bank’s “important contribution” to the “landmark” transaction. Outside the UK, HSBC helped seven governments to structure new green issuance – Chile, France, Germany, Hong Kong, Indonesia, the Isle of Man and Malaysia – in addition to a host of agencies and development banks.

As well as new asset classes, HSBC has a strong track record of supporting central banks’ investments in new markets. The bank is well known for its work in mainland China and Hong Kong, and is increasingly helping central banks to invest more widely across the Asia-Pacific region, with a particularly strong presence in South Korea and Singapore.

HSBC is a very strong bank in terms of global markets. I think they understand central banks very well

Official at a Middle Eastern central bank

A Middle Eastern central bank laid the groundwork for investments in China in 2021 with support from HSBC. An official at the institution says the central bank had been having conversations with HSBC on Chinese markets for a long time before going ahead with the project. This person notes HSBC’s deftness at handling the “detailed and complicated” requirements set by the Chinese authorities, adding that competitive pricing, the bank’s strong local team and backing from senior managers were all key factors in the decision.

“HSBC is a very strong bank in terms of global markets,” the official says. “I think they understand central banks very well.”

A relatively new focus, which goes beyond HSBC’s traditional role in global markets, is the bank’s work on central bank digital currency (CBDC). HSBC was a key partner to the Banque de France in a project exploring how different underlying technologies could be made interoperable. Mark Williamson, a managing director who oversees HSBC’s CBDC work for FX, says the “hugely ambitious” project with the BdF was developed around a “use case that was cross-asset class, cross-technology and also domestic and cross-border”. Such interoperability is only going to become more critical in the years ahead as new technologies proliferate, Williamson says.

Besides its work with the French central bank, HSBC is a member of the UK’s CBDC task force, and is also working on the mBridge project championed by the Bank for International Settlements’ Innovation Hub.

In a fast-changing world, HSBC again demonstrated in 2021 its position as a source of stability and trusted advice for central banks.

The Central Banking Awards were written by Christopher Jeffery, Daniel Hinge, Dan Hardie, Victor Mendez-Barreira, Ben Margulies and Riley Steward