SHANGHAI – A record number of listed firms in China are embracing currency derivatives and fuelling a boom in onshore trade of the instruments, the latest data shows, as companies and investors rush for protection from the yuan’s sharp drop against the dollar.
That should please Chinese regulators who have for years been pushing companies to pursue risk-neutral hedging, but the derivatives rush has proved a double-edged sword with bearish bets on the yuan also threatening to add unwelcome pressure on China’s currency.
“In reality, it’s difficult to be risk-neutral: Most company executives have their views on currency trends,” said Chen Hongting, an options trading advisor.
He said the dollar’s strength seems “unstoppable” and it would be natural for companies to act in line with that trend. If they end up making sizeable bearish bets via derivatives, he added, that could drag the yuan’s spot price down further.
The yuan has tumbled more than 11 percent this year against a surging US dollar and at one point hit its lowest since the 2008 global financial crisis, weighed down by US monetary tightening and China’s economic slowdown.
Rising global uncertainty and higher yuan volatility have spurred corporate demand for risk-hedging, said Liu Wencai, founder of risk management consultancy D-Union. – Reuters
