September 13, 2012 / 6:26 AM / 5 years ago

CNH Tracker-Hong Kong exchange, CME Group ready offshore yuan futures

By Michelle Chen
    HONG KONG, Sept 13 (Reuters) - The Hong Kong stock exchange
will launch the first exchange-traded USD/CNH currency futures
settled in yuan next week, enriching the derivative products
available in the fledgling market.
    The futures contract will cater to the increasing needs of
companies and investors to hedge currency risks as the one-way
appreciation trend of the yuan appears to have come to an end.
    The new contract, with lower counterparty risks and better
transparency, will become a good supplement to the existing CNH
deliverable forward (DF) and USD/CNY non-deliverable forward
(NDF) markets. 
    The yuan has slipped 0.6 percent against the U.S. dollar so
far this year, catching investors off guard as many of them did
not take any steps to hedge the yuan exposure.    
    Analysts differ on which direction the Chinese currency will
head next, given uncertainty over China's policies and its
slowing economic growth.
    BofA Merrill Lynch said in a latest report that yuan
appreciation has further to run over the longer run, but added
that over a 3-to-6-month horizon it will see increasing
flexibility, depreciation risks and volatility by extension.
    "Currency futures give an extra option to investors to hedge
their FX exposure," said Dominic Bunning, associate FX
strategist at HSBC, noting it is part of the process of
internationalising the yuan and making it more similar to other
global trading currencies, since major currency pairs all have
the trading of FX futures.
    The largest U.S. exchange operator, CME Group, also
announced on Thursday its plans to launch deliverable CNH
futures and have them dually listed on both CME and CME Europe
Ltd in the fourth quarter this year and the second quarter 2013,
    The USD/CNH currency futures to be launched in Hong Kong on
Sept. 17 will require delivery of dollars by the seller and
payment in yuan by the buyer at maturity. Contracts will be
quoted in yuan per dollar and margined in yuan, with trading and
settlement fees also charged in yuan.
    Calvin Tai, head of the trading division at exchange
operator Hong Kong Exchanges and Clearing, expected
the futures contracts to divert some fund flows from the NDF
market which he said is only a transitional market before the
yuan becomes fully convertible.
    However, most traders believe corporates with FX exposure
will stick to the DF market, which has no margin requirements,
tailor-made contract sizes and tenors.    
    In the DF market, the settlement date is fixed according to
each company's needs and thus greatly reduces the basis risk,
said a trader based in Hong Kong, referring to the risk brought
by the mismatch between the expiration date of hedging tools and
settlement date of actual imports/exports. 
    That said, the futures market is likely to attract players
from a much broader base, including those making investments in
yuan products such exchange traded funds and under qualified
foreign institutional investor scheme, or even individual
    Also, with these standardized contracts becoming available,
investors may be more encouraged to take positions in both the
onshore and offshore yuan market, to benefit from their
relatively higher returns while manage currency risks.
  * Five Taiwan banks have been given permission by People's
Bank of China to invest in mainland's interbank bond market,
including Hong Kong branches of China Trust Commercial Bank,
Bank of Taiwan, Hua Nan Bank, Fubon Bank and the offshore
banking unit of Mega International Commercial Bank.
  * S&P Dow Jones Indices and Deutsche Bank have co-branded the
latter's existing Offshore Renminbi Bond Index Tracker. J.R.
Rieger, Vice President of fixed income indices at S&P Dow Jones
Indices, said global demand to passively invest is something
that's driving demand for the dim sum type products for higher
yields and the ability to diversify portfolios.
  * Malaysian telecommunication company Axiata issued a 1
billion yuan ($158 million), two-year dim sum sukuk, priced at
3.75 percent. It is the second dim sum sukuk following the one
issued by Khazanah Nasional last October, and was very well
received with the books over 3.5 billion yuan from 82 orders.
  * The dim sum bond market is going through an evolution as the
nature of the classical investors keeps changing from macro
funds to credit-focused ones, said Vishal Goenka, Deutsche
Bank's Asia head of local currency credit trading, adding that
daily trading volume of dim sum bonds has dropped 30-40 percent
from last year amid gloomy global financial markets.
  * Further widening the trading band for China's yuan
 is a policy option that China's central bank may
adopt in the future to better reflect market forces, said Guo
Jianwei, deputy director of the central bank's monetary policy
department, giving no timeframe.  
    Offshore yuan movements:LEAGUE TABLES    
    Book runner:        Proceeds (RMB mln):       # of issues:  
    1. HSBC                30,721.6                     95     
    2. Standard            14,814.1                     52     
       Chartered Bank     
    3. Bank of China        9,860.6                     13    
    4. BNP Paribas SA       8,318.1                     30     
    5. Barclays             6,711.7                     14      
    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 Sept 13.
CNH Tracker-Rising swap rates favor foreign issuers of dim sum
Taiwan-China economic ties to deepen with yuan pact
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 
0 : 0
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