WHICH INVESTORS WILL TRADE ON THE DUAL COUNTER?
The first batch of investors could be holders of offshore yuan deposits in Hong Kong, which totalled 833 billion yuan (US$117 billion) at the end of April, as they look for potentially higher returns in the stock market.
Yuan holders in China’s trading partners such as Russia, Pakistan and countries in the Middle East could also be potential investors.
The HKEX is working with Chinese regulators to allow mainland investors to eventually participate via the Stock Connect investment channel that connects the Hong Kong, Shanghai and Shenzhen stock exchanges.
Mainland investors currently trading Hong Kong stocks through the southbound leg of Stock Connect face an exchange rate risk, which, to hedge, they have to pay a 2 per cent margin to their brokers when they submit their trade orders.
Also, investors are told the exact yuan amount they have to pay or receive only at the end of each trading day.
The yuan counter will mean investors will be paying the yuan price for stocks quoted in real time during trading hours.
TELL ME MORE ABOUT THE OFFSHORE YUAN, OR CNH
CNH stands for offshore yuan, launched in 2003 as an experiment in creating a distinct, offshore market for yuan.
The onshore yuan is only partially convertible as China’s capital account remains largely closed. Schemes such as the Stock Connect and CNH are part of China’s efforts to gradually open up its capital market to foreigners.
The onshore yuan is largely fungible with CNH and, under normal market conditions, their exchange rates tend to move together.
The onshore yuan is more managed by authorities, with the spot rate allowed to trade within a 2 per cent range around the official daily fixing set by China’s central bank. The CNH is driven mainly by demand and supply.
China’s yuan is essentially one currency with two exchange rates.
Source: CNA
