| HONG KONG
HONG KONG May 29 Hong Kong's yuan loans market
is set to revive with the Chinese currency trapped in its
longest downtrend since its 2005 revaluation and as the
mainland rolls out pilot schemes to boost cross-border lending
Corporates have long avoided yuan loans as the "redback" had
steadily appreciated for years, making repayment of yuan debt
more expensive when these loans came to maturity.
"The sustained weakness of the yuan and policy easing
recently is providing a golden opportunity for the offshore yuan
loan market to take off," said Wang Ju, a senior strategist at
Hong Kong's yuan loans market took off after the territory's
yuan clearing agreement was modified four years ago.
Outstanding yuan loans stood at 123 billion yuan ($19.7
billion) at end-February, according to statistics from the Hong
Kong Monetary Authority (HKMA).
The market seems especially dwarfed compared with the dim
sum bond market, which reached 704 billion yuan at the end of
April, including certificates of deposits (CD).
However, the dramatic fall of the Chinese currency this year
will likely inject fresh life into the loan market.
The yuan has entered a weakening cycle since the beginning
of the year as China's central bank took action to squeeze out
hot money betting on one-way appreciation in its currency.
It has lost 3.2 percent since the start of the year after
appreciating more than 30 percent since its 2005 landmark
revaluation, wiping out all its gains recorded last year. It is
one of 2014's worst performers among its emerging market peers.
Details to get business in the Shanghai free trade zone
moving were recently unveiled by Beijing while regulators also
announced easing of constraints on cross-border guarantees.
Institutions and individuals in the Shanghai free trade zone
will be allowed to set up specially tagged bank accounts,
effective immediately, to create a closely managed opening in
the country's capital account for the zone.
Foreign direct investments and repayment of self-owned yuan
loans with duration longer than six months borrowed from
Shanghai financial institutions are allowed between a resident's
free trade account and the same name domestic settlement
Previously, mainland companies who faced hurdles raising
funds onshore and wanted to capitalise on cheaper yuan funding
offshore could not easily channel monies back to China due to
Beijing's tight controls on the capital account
The State Administration of Foreign Exchange also
streamlined the process for cross-border guarantees and deleted
the quantitative limits for financial institutions issuing such
This will greatly activate the demand for offshore yuan
loans which are much cheaper than those in the mainland. Bankers
say the cost of a one-year loan denominated in yuan is around 4
percent in Hong Kong, while in China it is more than 6 percent.
Adding to the momentum will be the Hong Kong-Shanghai stock
connect scheme that is poised to be launched in October.
With investors in Hong Kong to be permitted to carry out
A-share margin financing, there will be demand for yuan loans,
said Andrew Fung, executive director of Hang Seng Bank
A well-developed yuan loan market helps improve the CNH
Hibor curve, which offers a benchmark to structure more
complicated yuan products that can be used by global investors
to participant in the market and hedge risks.
WEEK IN REVIEW:
* Singapore's Fullerton Fund Management said on Monday it
had been granted a renminbi Qualified Foreign Institutional
Investor (RQFII) licence, becoming one of the first
Singapore-based entities to be given such a licence.
* China CSOP Asset management and London-based Source
announced on Monday the launch of a Euro trading line for their
FTSE China A50 exchange traded fund (ETF) on the Deutsche Börse
Xetra, offering more European investors direct exposure to
China's stock market.
* Banks in Hong Kong have started to provide yuan structured
deposit products to investors who are betting the Chinese
currency will depreciate in coming months, amid weak sentiment
over the outlook for China's economy and currency.
CHART OF THE WEEK:
Yuan loan market in Hong Kong remains at an initial stage: link.reuters.com/fen69v
Hong Kong banks offer structured deposits to yuan bearish
CNH Tracker-China's debt yields converge slowly, even amid FX
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
THOMSON REUTERS SPEED GUIDES
($1 = 6.2556 Chinese Yuan)
(Editing by Jacqueline Wong)