Hong Kong Lenders To Widen Availability Of Yuan Hedging Contracts

by Mary Swire, Tax-News.com, Hong Kong

22 August 2005

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.

Recommended