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Sunday 28 December 2008
H-Shares Proposed as Hedge Against Forecast 5pc Yuan Slide
An influential member of the mainland cabinet’s think-tank expects the yuan to depreciate against the US dollar as much as 5 per cent next year, and proposes that Beijing consider using its vast foreign exchange reserves to buy H shares.
H-Shares Proposed as Hedge Against Forecast 5pc Yuan Slide
Denise Tsang 24 December 2008
An influential member of the mainland cabinet’s think-tank expects the yuan to depreciate against the US dollar as much as 5 per cent next year, and proposes that Beijing consider using its vast foreign exchange reserves to buy H shares.
Yi Xianrong, a researcher at the financial research centre of the Chinese Academy of Social Sciences, based his forecast of yuan softening on his assumption that the weakened greenback will roar back as a safe haven amid the global financial turmoil.
His estimate is well ahead of any forecasts, including a 2 per cent yuan decline expected by cCorp, 2.5 per cent by Spanish lender BBVA, and 1 to 2 per cent by researchers at the National Development and Reform Commission and State Information Centre.
“[A 5 per cent depreciation] is certainly possible,” Mr. Yi said in Hong Kong yesterday.
“A poorer yuan could be bad news for China’s foreign exchange reserves, but they are so big that a small depreciation is manageable.”
He added that a weaker yuan would favour exporters reeling from a 6 per cent gain so far this year and a 6.4 per cent jump last year.
Some economists say a weaker yuan could reignite trade frictions with China’s major trading partners - the United States and the European Union - which say Beijing’s policy of keeping the yuan low gives mainland exporters an unfair edge.
The yuan’s median exchange rate barely changed at 6.83 to the US dollar yesterday, the China Foreign Exchange Trade System said. It has hovered between 6.82 and 6.85 in the past month.
A weaker yuan will shrink the nation’s foreign reserves further. The State Administration of Foreign Exchange yesterday said the reserves dropped for the first time since December last year to below US$1.89 trillion in October amid a euro slump against the dollar and a downturn in exports and foreign direct investment. However, the reserves remain the world’s largest.
Mr. Yi said that the central government could use part of the reserves to buy H shares - stocks of state enterprises listed in Hong Kong.
“It is necessary for the central government to stabilise the A-share market, and buying H shares is a feasible way,” he said. “Prices of H shares are lower and risks are relatively low. It is a good time to buy.”
He pointed out that several H-share companies were dually listed in Shanghai’s A-share market and Hong Kong.
Consistent with his outspoken style, Mr. Yi said Hong Kong ultimately needed to become an offshore settlement centre for yuan business to improve its competitiveness. A prerequisite to achieving this goal was the economic integration of Hong Kong and Guangdong, including the industrial city of Shenzhen, he said.
He added that Guangdong, instead of Tianjin, could be a testing centre for the suspended plan to allow mainlanders to invest directly in Hong Kong stocks under the “investment through-train scheme”.
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H-Shares Proposed as Hedge Against Forecast 5pc Yuan Slide
Denise Tsang
24 December 2008
An influential member of the mainland cabinet’s think-tank expects the yuan to depreciate against the US dollar as much as 5 per cent next year, and proposes that Beijing consider using its vast foreign exchange reserves to buy H shares.
Yi Xianrong, a researcher at the financial research centre of the Chinese Academy of Social Sciences, based his forecast of yuan softening on his assumption that the weakened greenback will roar back as a safe haven amid the global financial turmoil.
His estimate is well ahead of any forecasts, including a 2 per cent yuan decline expected by cCorp, 2.5 per cent by Spanish lender BBVA, and 1 to 2 per cent by researchers at the National Development and Reform Commission and State Information Centre.
“[A 5 per cent depreciation] is certainly possible,” Mr. Yi said in Hong Kong yesterday.
“A poorer yuan could be bad news for China’s foreign exchange reserves, but they are so big that a small depreciation is manageable.”
He added that a weaker yuan would favour exporters reeling from a 6 per cent gain so far this year and a 6.4 per cent jump last year.
Some economists say a weaker yuan could reignite trade frictions with China’s major trading partners - the United States and the European Union - which say Beijing’s policy of keeping the yuan low gives mainland exporters an unfair edge.
The yuan’s median exchange rate barely changed at 6.83 to the US dollar yesterday, the China Foreign Exchange Trade System said. It has hovered between 6.82 and 6.85 in the past month.
A weaker yuan will shrink the nation’s foreign reserves further. The State Administration of Foreign Exchange yesterday said the reserves dropped for the first time since December last year to below US$1.89 trillion in October amid a euro slump against the dollar and a downturn in exports and foreign direct investment. However, the reserves remain the world’s largest.
Mr. Yi said that the central government could use part of the reserves to buy H shares - stocks of state enterprises listed in Hong Kong.
“It is necessary for the central government to stabilise the A-share market, and buying H shares is a feasible way,” he said. “Prices of H shares are lower and risks are relatively low. It is a good time to buy.”
He pointed out that several H-share companies were dually listed in Shanghai’s A-share market and Hong Kong.
Consistent with his outspoken style, Mr. Yi said Hong Kong ultimately needed to become an offshore settlement centre for yuan business to improve its competitiveness. A prerequisite to achieving this goal was the economic integration of Hong Kong and Guangdong, including the industrial city of Shenzhen, he said.
He added that Guangdong, instead of Tianjin, could be a testing centre for the suspended plan to allow mainlanders to invest directly in Hong Kong stocks under the “investment through-train scheme”.
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