CNH Tracker-Offshore yuan pool likely to be buoyed by stronger currency

Thu Dec 13, 2012 2:48am EST

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By Michelle Chen
    HONG KONG, Dec 13 (Reuters) - Expectations of strong yuan
appreciation are reviving and reshaping onshore and offshore
spot yuan moves, widening the spread between the two curves to
as much as 350 basis points this week, the highest level in
almost a year.
    Analysts say the sharp rise in the value of the offshore
yuan against the U.S. dollar will hopefully attract more Chinese
importers to convert their yuan positions to the dollar in the
offshore market for trade payments, leading to an increase in
the offshore yuan pool, which has been under pressure this year.
    The offshore yuan spot has been hovering near 
record highs in the past two weeks. The onshore yuan spot
, which is restrained by a 1 percent daily trading
band, has lagged behind, though it repeatedly hit the top-end
limit during the past month.
    The Chinese currency has been buoyed by a raft of economic
data which has added to signs that the world's second-largest
economy is emerging from a protracted slowdown. 
    "The CNH is now more expensive than the CNY and those who
want to sell renminbi may choose to sell it in Hong Kong, which
is likely to lead to a big increase in the offshore yuan pool in
November and December," said Andrew Fung, Hang Seng Bank's
executive director.
    Hong Kong's yuan deposits have been shrinking most of the
year and were at 554.8 billion yuan at end-October, down 12
percent from last November's peak, as investors moved their
deposits to investment products both onshore and offshore to
pursue higher yields.
    Interest in the yuan was also dampened after a depreciation
of 1.6 recent from the beginning of this year to its July
trough. It has since recouped those losses and is now up nearly
1 percent for the year to date.
    As a result, the offshore yuan rate almost converged with
the onshore one or even became weaker than it recently,
prompting more balanced cross-border fund flows under the yuan
trade settlement scheme, which is the main source of the
offshore yuan pool.
    Material from the Hong Kong Monetary Authority showed that
payments from Hong Kong to mainland China surpassed those from
the mainland to Hong Kong under yuan trade settlement during the
past two quarters, implying declining interest to hold yuan by
foreign corporates.
    "The spread between CNH and CNY spot could be sustained
going into the first quarter of next year due to strong
sentiment in RMB, which has less price constraints offshore,"
said Wang Ju, a senior Asian FX strategist at HSBC.
    Downside momentum in USD/RMB is likely to continue through
the fourth quarter and the first quarter next year due to
seasonal and cyclical factors, she added.
    The bank expected the three yuan forward curves, including
onshore and offshore deliverable forwards and offshore
non-deliverable forwards, to converge over time and suggested
positioning for that via selling 12-month USD/CNH and USD/CNY
NDF spreads.   
    
    WEEK IN REVIEW:
   * Bank of China , China's No. 4 bank, has
been appointed the clearing bank for yuan transactions in
Taiwan, China's central bank said on Tuesday, starting the last
leg of an economic integration that has drawn Taiwan closer to
its one-time political foe and lifted trade to over $160 billion
annually. 
   * Bank of China hopes its Taipei branch will open yuan
clearing business in Taiwan in a month, Perng Fai-nan, Taiwan's
central bank chief said on Wednesday, adding the central bank
will likely consider putting the yuan into its forex reserves
portfolio, which is the fourth-largest behind China, Japan and
Russia. 
   * The Western Canadian province of British Columbia is
looking to sell dim sum bonds and has hired HSBC on the deal,
Jamie Edwardson, director of communications for B.C.'s ministry
of finance said, in what could be the first time a foreign
provincial government has issued offshore yuan debt.
 
   * BNP PARIBAS has been given approval to launch the world's
first yuan-denominated warrant in Hong Kong on Dec. 19,
information provided by Hong Kong Stock Exchange showed. The
underlying asset is the existing issued yuan traded units of
ChinaAMC CSI 300 Index ETF. 
   * China Asset Management (Hong Kong) said it has been given a
further 5 billion yuan quota for its yuan exchange-traded fund
(ETF) listed in Hong Kong by China's State Administration of
Foreign Exchange of China. E Fund (Hong Kong) also announced it
has used up its 5 billion yuan ETF quota and is applying for new
quota. 
    
    CHART OF THE WEEK:  
    CNH & CNY spot curves: link.reuters.com/cyk64t
    
    LEAGUE TABLES    
    
    Book runner:        Proceeds (RMB mln):       # of issues:  
 
    1. HSBC                40,290.8                    126     
    2. Standard            19,438.5                     75     
       Chartered Bank     
    3. BNP Paribas SA      16,726.3                     60     
    4. Bank of China       10,321.3                     15    
    5. Deutsche Bank        6,988.5                     27      
  
    
    YTD synthetic RMB bond issuance:       
    Book runner:         Proceeds (RMB mln):       # of issues: 
  
    1. Deutsche Bank       4,479.2                       3    
    2. Citi                2,912.5                       2    
    3. Bank of China       2,312.5                       1    
    4. Bank of America     2,312.5                       1     
       Merrill Lynch    
    5. HSBC                1,248.5                       2     
  
    * Thomson Reuters data as of Dec. 13. 
       
     RECENT STORIES:
CNH Tracker-Foreign investors pursue yuan products to bet on
China recovery 
    
More stories about the CNH market                 
Daily onshore yuan reports                        
Daily China money market reports                  
      
Offshore yuan rate    Onshore yuan rate  
Offshore yuan dealt Onshore yuan on CFETS 
Offshore yuan bonds 
  
THOMSON REUTERS SPEED GUIDES  
          

 (Editing by Kim Coghill)
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