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Trading risks rise as RMB falls

日期:2014-03-12  作者:  来源:国际经贸合作网

 Investors seek out more hedging in futures market, says dealers

The recent tumble in the yuan exchange rate has increased risks in money trading and triggered more hedging from investors in the currency futures market, economists and foreign exchange dealers in Hong Kong said.

The yuan slipped 0.03 percent to close at 6.1402 per dollar in Shanghai, according to China Foreign Exchange Trade System prices. The currency has fallen 0.4 percent in three days and 1.4 percent this year. The People's Bank of China on Tuesday cut the daily reference rate by 0.02 percent to 6.1327, the lowest level since Dec 3.

Renminbi currency futures witnessed a record high of 1,461 contracts (US$146.1 million notional) in February, up 500 percent from the average daily volume in 2012, according to Hong Kong Exchanges and Clearing Limited (HKEx), signaling a greater need for foreign exchange and interest rate risk management.

Kelvin Lau, senior economist at Standard Chartered Bank, said the currency will maintain a trend for medium-term appreciation, supported by China's good economic fundamentals. But, with greater volatility, there will be more demand for renminbi hedging products.

He added that the occasional swings in the renminbi exchange rate against the US dollar and other major currencies is good for Hong Kong's yuan business.

"There are enough varieties of renminbi hedging products in Hong Kong right now. What we always lack is demand," said Lau.

He gave a year-end estimation of 5.92 for the value of onshore yuan against the US dollar, and 5.91 for offshore.

Standard Chartered forecasts the fluctuation band will be further widened by 0.5 of a percentage point to both band limits in the second quarter. A second phase widening will take place at the year's end, taking the band to 2 percent.

Charles Li Xiaojia, chief executive officer of HKEx, wrote in his blog on Sunday that greater risk is inevitable because the renminbi is on a path to greater internationalization and increasing volatility.

The HKEx will launch renminbi currency futures for after-hours trading on April 7 to meet demand from the European and US markets as well. It is also considering extending the maturity of renminbi currency futures to manage longer-term risk exposures.

The People's Bank of China will keep working on the convertibility of the capital account to boost investors' confidence in the yuan, said governor Zhou Xiaochuan during a news conference for the second session of China's 12th National People's Congress.

Zhou added Hong Kong is well positioned as a center for renminbi development and restrictions will be gradually removed.

In January, the currency accounted for 1.3 percent of all international payments, up from 1 percent in December, ranking it the eighth most-used currency.

Lau said that the market will see greater uncertainties as the People's Bank of China gradually loosens its controls on the yuan and more market forces participate in the formation of exchange rates.

Eliza Liu, chief economist at CCB International Securities Ltd in Hong Kong, said major investors are still keen on onshore markets because the interest spread still exists between onshore and offshore rates.

"The People's Bank of China will expand more inflow channels for offshore renminbi investors because the currency is not fully convertible right now," said Liu.

"Renminbi products will be further diversified, including spot and forwards and derivatives, just as the US did during the internationalization process of the dollar," she added.

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