HKEx yuan futures plan looks timely for investors

PUBLISHED : Saturday, 21 April, 2012, 12:00am
UPDATED : Saturday, 21 April, 2012, 12:00am


Analysts believe the Hong Kong Exchanges and Clearing's plans to introduce yuan futures in the third quarter will attract retail investors and companies to trade.

The exchange's move comes as companies are expected to demand futures products to hedge their yuan positions. People's Bank of China on Monday widened the daily trading band of yuan to 1 per cent, from 0.5 per cent, which is set to make the currency more volatile, making hedging all the more important.

Edward Chow Kwong-fai, deputy chairman of the Business and Professionals Federation of Hong Kong, said companies would now need to prepare for more swings in the yuan and more hedging options couldn't have come at a better time.

Christopher Cheung Wah-fung, chairman of Christfund Securities, said both companies and individual investors might want to trade the exchange products.

'Although many institutional investors are currently trading yuan futures at over-the-counter (OTC) markets rather than at the exchange, many retail investors and companies would prefer to trade at the exchange if it has these products. Trading at the exchange is more transparent and is supported by the market maker to ensure the liquidity of the products,' Cheung said. 'As China is now keen to promote the internationalisation of the yuan, the HKEx should introduce more yuan-denominated products in the future.'

HKEx announced on Thursday announced it would introduce yuan futures to help strengthen the city's efforts to emerge as the leading off-shore yuan trading centre. Though the yuan is yet to be fully convertible, Beijing has been promoting the use of the currency for trade and investment purposes to help boost its transformation into an investment and reserve currency.

HKEx, whose forte is equity trading, this year said it wanted to expand into more currency and commodities products. The proposed USD/CNH futures contract will require delivery of US dollars by the seller and payment of the final settlement value in yuan by the buyer at maturity.