This week in renminbi: December 5, 2016
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This week in renminbi: December 5, 2016

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The week begins with the long-awaited launch of the Shenzhen-Hong Kong Stock Connect, while in the foreign exchange (FX) markets the RMB volatility led to a new record in RMB futures traded on the Singapore Exchange in November.

Shenzhen Connect:

  • CY Leung, chief executive of the Hong Kong Special Administrative Region opened trading for the brand new Shenzhen Connect link at 9:30am on Monday at the Hong Kong Exchange (HKEX).

  • The link expands the offering of mainland stocks that can be traded from overseas. The scheme has no aggregate quota but maintains a daily northbound net trading quota of Rmb13bn ($1.8bn).

  • As of 11.11am, Rmb1.4bn in purchases and no sell trades had been completed on the new scheme, according to HKEX data, taking up 10% of daily quota. On the southbound channel, Shenzhen investors bought HK$444m and sold HK$7m in Hong Kong shares.

FX:

  • People’s Bank of China set the fix for the CNY against the dollar at 6.8870, 76bp weaker than the one on December 2. The CNY was trading at 6.8895, down 0.14% at 11am. The offshore RMB (CNH) was also down 0.20% to 6.8843. 

  • In the interbank lending market, which had seen significant liquidity tightening last week following interventions by PBoC to shore up the currency, the CNH overnight rate (CNH Hibor ) surged again on December 5 to 12.38, the highest since the early January panic around the rapid depreciation of the RMB.

  • The surge in CNH Hibor has been a tool for the onshore regulators to increase the cost of shorting the RMB in the offshore markets, although market participants have also pointed out that such flash squeezes hurt firms and financial institutions conducting trade-related business in RMB.

  • As a result of increased volatility in the CNH markets, the Singapore Exchange (SGX) saw record trading for USDCNH futures contract. Open interest on the contracts reached 21,083 on November 28, a new high, while average daily volume surged 66% on a monthly basis to a record 4,462 contracts (with a notional value of $446m) in November.

  • SGX said the recent developments will continue to make RMB the key emerging markets currency in foreign exchange markets, as found in the tri-annual survey recently published by BIS.

  • “As the RMB continues to depreciate against the USD, Chinese exporters are looking to shift exchange risk to offshore buyers,” SGX said in a report. “Onshore Chinese corporations are actively seeking to cut exposure to USD-denominated debt and ramping up trades settled in RMB as a hedge against the mainland’s depreciating currency.”

  • SGX added that with RMB-based trade settlements set to increase significantly, onshore and offshore firms will likely seek currency risk management tools to protect against further RMB depreciation risks. SGX is launching USDCNH options contracts on December 5. 

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