HKEx to launch gold futures contracts denominated in yuan

Exchange moves to expand range of yuan-related offerings

PUBLISHED : Tuesday, 23 February, 2016, 1:34pm
UPDATED : Tuesday, 23 February, 2016, 6:30pm

Hong Kong Exchanges and Clearing plans to launch gold futures contracts denominated in yuan, with the announcement coming less than a year after it scrapped trade in US dollar-denominated gold futures that had failed to attract much interest from market participants.

HKEx chief executive Charles Li Xiaojia said at a regulatory forum on Tuesday that the new product would be different from the US dollar-denominated version, which was discontinued in March after languishing in thin trade for a year following a rocky debut in 2008 at the height of the global financial crisis.

Li said the yuan gold futures would add to HKEx’s growing list of yuan-related offerings.

Hong Kong is small but could take a big role in the offshore yuan market
Charles Li, HKEx

“We have RMB futures against the US dollar, which is very popular,” he said. “We will launch other yuan futures against other currencies such the yen, the euro, ringgit and others,” Li said.

He did not give a timetable for the product launches, but added they would strengthen Hong Kong’s role as an offshore yuan centre for international investors.

“Hong Kong is small but could take a big role in the offshore yuan market,” he said. “This is just like the London US dollar market. We just need to have more yuan products here.”

Christopher Cheung Wah-fung, the legislator representing the financial services sector, welcomed the new products.

“It would be good for the exchange to launch more products for investors to trade and to expand yuan products trading,” Cheung said.

Currency traders, however, warned the products could be used by speculators to attack the yuan.

“Any currency futures products could be used as a hedging tool but could also be used by speculators to attack the yuan,” currency trader Jasper Lo said. “The offshore yuan will become more volatile if more yuan futures are launched.”

Hong Kong has become a battleground between People’s Bank of China and currency speculators on the price of offshore yuan, with the central bank wanting to keep the currency stable while some hedge funds have vowed to short sell the currency as they believe it will undergo a one-off devaluation. Some hedge fund managers predict the yuan will lose about 15 per cent against the US dollar this year, with the more bearish predicting a 40 per cent decline over three years.

The PBOC has intervened in the Hong Kong market in the past two months to squeeze the interbank market interest rate, CNH Hibor, up to add speculators’ costs. That has seen the yuan turn around, appreciating by about 0.6 per cent against the US dollar so far this year after depreciating by 2 per cent in the first week of the year. It weakened by more than 5 per cent against the US dollar last year.