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Forecast mismatch means now a good time to hedge RMB: ANZ

15 Oct 2012

Companies that want to hedge their renminibi exposure should act now to take advantage of the discrepancy of market forecasts and interest rate derivatives.

A mismatch between analyst expectations and pricing in the forwards market means now is a good time for treasurers to hedge their renminbi exposure, says ANZ.

The Australian bank also believes that London could find itself at a disadvantage to other offshore centres if it does not eventually have a renminbi clearing bank.

Jeannette Chan, who is responsible for Asian Corporate sales in Europe at ANZ says the bank is receiving increased interest from European corporate for using renminbi.

“We are seeing more interest from European in making payments in renminbi and also seeing less resistance from Chinese entities as well.

“One of the questions we have a lot is ‘what happens when you get renminbi?’ Looking at the curves, forwards are pricing in depreciation whereas the market is forecasting appreciation. There is a gap of 3% to 4% which means if you are short RMB and need to buy, it is cheaper now to hedge it forward,” she said speaking on a webinar organised by the bank on October 11.

Both onshore and offshore forward curves are pricing in depreciation of renminbi. The onshore USD/CNY 12 month deliverable forward values the currency at Rmb6.441 per US dollar compared to a spot price of Rmb6.2892 and the values are similar for the offshore USD/CNH deliverable forward and offshore USD/CNY non-deliverable forward.

The growing use of the renminbi for trade settlement means it now ranks as the third largest currency by vvalue for invoicing behind the euro, according to data from Swift. Li-Gang Liu, chief greater China economist at ANZ believes the adoption of the currency by corporates means it could soon move into second place.

“After two years it [renminbi] has quietly become the third largest invoicing currency. It has 4% of transaction value and the euro has only 7%. We think in the not so distant future the renminbi can be the second biggest currency in terms of invoicing volume. It is only 16th in trade settlement but the growth rate will continue to surprise us,” he said. 


Source: Swift

Meanwhile Liu expects China to continue to develop other offshore renminbi centres in addition to Hong Kong. Taiwan has recently signed a memorandum of understanding with the People’s Bank of China which will see renminbi clearing bank set up in the country. Singapore has also recently gave Bank of China and ICBC Bank full bank status which is understood to be a prelude to one of them becoming a clearing bank in the city state. London is also working actively to increase renminbi business but has ruled out have a clearing bank which the economist believes could hurt the city in the long run.

“We think this set up [in London] will eventually mean that liquidity will be constrained and settlement time will be a constraint,” he said.

However, he is more positive on the outlook for other offshore renminbi centres.

“It is possible that Taiwan and Singapore could catch up Hong Kong quickly. Speaking to officials at the PBoC, current thinking is that it would like to encourage more competition and that through competition internationalisation will proceed faster,” he said.

Other predictions made by the bank include the volume of renminbi deposits globally growing to Rmb1.5 trillion by 2015. As of August 2012 the figure stood at Rmb552 billion (US$88 billion). In addition, RMB-settled China trade is expected reach 30% from 2011 9%.

15 Oct 2012