© Reuters. FILE PHOTO: Chinese language 100 yuan banknotes are seen on a counter of a department of a industrial financial institution in Beijing, China, March 30, 2016. REUTERS/Kim Kyung-Hoon/File Picture/File Picture
By Georgina Lee and Winni Zhou
HONG KONG (Reuters) – The Hong Kong inventory change will begin providing yuan-denominated Chinese language shares from Monday in what it calls a twin counter, a scheme that’s seen as a part of China’s efforts to extend the yuan’s use abroad.
The change will initially goal the choices at traders holding .
Finally, the Hong Kong Exchanges & Clearing (HKEX) goals to allow mainland traders to commerce yuan shares listed in Hong Kong utilizing their .
This is a take a look at how the yuan-denominated inventory buying and selling works, and the CNH’s function.
HOW DOES THE DUAL STOCKS COUNTER WORK?
The HKEX’s Twin Counter Mannequin permits traders in Hong Kong to commerce shares concurrently in each Hong Kong greenback and the yuan. A complete of 24 firms will begin providing yuan counters on the scheme’s launch.
The HKEX has stated all shares of the identical securities within the two buying and selling counters can be absolutely interchangeable between counters. They are going to be designated because the HKD-RMB Twin Counter Securities.
The yuan counter can be listed individually beneath a unique, 5-digit inventory code that begins with “8”; whereas the Hong Kong greenback counter will comply with a 5-digit quantity beginning with a “0”.
The HKEX can also be rolling out a market-maker program, in order that any value variations between the 2 counters due to the yuan’s strikes might be decreased.
IS IT THE FIRST TIME THAT YUAN-DENOMINATED STOCKS WILL BE TRADED ON THE HKEX?
No. There was a dual-currency buying and selling precedent, when Hopewell Freeway Infrastructure provided such an choice of yuan shares in 2012 to traders, lengthy after its Hong Kong shares first debuted in 2003.
However the yuan counter failed to realize traction as a result of important value hole between the 2 buying and selling counters.
WHICH INVESTORS WILL TRADE ON THE DUAL COUNTER?
The primary batch of traders might be holders of offshore yuan deposits in Hong Kong, which totalled 833 billion yuan ($117 billion) on the finish of April, as they search for doubtlessly greater returns within the inventory market.
Yuan holders in China’s buying and selling accomplice international locations, comparable to Russia, Pakistan and the Center East, may be potential traders.
The HKEX is working with Chinese language regulators to permit mainland traders to ultimately take part through the Inventory Join funding channel that connects the Hong Kong, Shanghai, and Shenzhen inventory exchanges.
Mainland traders at present buying and selling Hong Kong shares by means of the southbound leg of the Inventory Join face an change fee danger, to hedge which they must pay a 2% margin to their brokers once they submit their commerce orders. Additionally, traders are informed the precise yuan quantity they must pay or obtain solely on the finish of every commerce day.
The yuan counter will imply traders can be paying the yuan value for shares quoted in actual time throughout buying and selling hours.
TELL ME MORE ABOUT THE OFFSHORE YUAN, OR CNH
CNH stands for offshore yuan, launched in 2003 as an experiment in creating a definite, offshore marketplace for yuan.
The onshore yuan is barely partially convertible as China’s capital account stays largely closed. Schemes such because the Inventory Join and CNH are a part of China’s efforts to progressively open up its capital market to foreigners.
The onshore yuan is essentially fungible with CNH and, beneath regular market circumstances, their change charges have a tendency to maneuver collectively. The onshore yuan is extra managed by authorities, with the spot fee allowed to commerce inside a 2% vary across the official every day fixing set by China’s central financial institution. The CNH is pushed primarily by demand and provide.
China’s yuan is actually one foreign money with two change charges.
($1 = 7.1140 Chinese language yuan renminbi)
