Hong Kong Lenders To Widen Availability Of Yuan Hedging Contracts
Several Hong Kong-based lenders have expressed their intention to lower minimum
investment limits for yuan forward contracts to allow many small and medium-sized
firms caught by surprise by China's decision to revalue its currency last month
to hedge more effectively. Typically, the minimum contract size for these NDFs ranges from $500,000 upwards,
which is beyond the reach of many small firms seeking to hedge against further
increases in the value of the yuan. However, according to the South China Morning
Post, many banks are considering lowering the minimum investment level for the
yuan non-deliverable forward contract (NDF), which is settled in US dollars,
including ICBC (Asia), Hang Seng Bank and Citic Ka Wah Bank. The SMCP reports that ICBC is lowering its minimum contract value to $1 million
from $3 million, and Hang Seng Bank is to reduce its minimum contract threshold
of $500,000, with a spokesman indicating that a contract size of between $50,000
and $100,000 is an option. In July, China scrapped its peg to the US dollar, deciding instead to link
the yuan to a basket of currencies, resulting in a moderate strengthening of
the Chinese currency against the dollar of 2.1%. Analysts predict that the currency
is likely to appreciate by between 5% and 10% over the next one to two years. .
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