HSBC: Yuan likely to settle at current levels

Tait:

Currency not expected to fluctuate to 10% as predicted

KUALA LUMPUR: An international finance specialist said that the yuan should settle at current levels following the adjustments done to the movement of the currency by the People’s Bank of China (PBOC) last week.

HSBC Bank global trade and receivables finance head Stuart Tait did not expect the range to fluctuate to 10% as predicted by some.

“The reduction of 3% in yuan is about finished now it’s beginning to settle at that level.

“We don’t see it going to the level of 10% like what some people say,” he told StarBiz on the sidelines of HSBC’s Forum on Renminbi and China’s Future.

Last week the yuan weakened by as much as 3.04% after the PBOC adjusted the currency movements by 2%.

But even after the adjustment, the yuan had strengthened against the greenback by 5.83% in the last five years.

The thing that the panellists were certain about was a more “flexible” rate ahead and that the rates would be determined more and more by the market.

“Whether it strengthens or weakens, we’re not sure,” Tait added.

That also meant that the movement of yuan and other Asian currencies would be more volatile ahead.

PBOC’s announcement had caught investors by surprise, as the currency of the world’s second largest economy had been deemed stable.

Regional currencies slid in tandem with the yuan last week as some perceived Beijing’s move to allow the yuan to trade at a wider range as a sign to increase its competitiveness for China’s exports.

Others took it as a slowdown in China’s economic growth.

HSBC global emerging markets head Paul Mackel explained that the move was not to devalue the yuan but to readjust rates for it to be more “flexible” based on market forces.

“When this came out, there was nervousness in the market. Some thought whether the US Federal Reserve would delay the hike in interest rates but I think that some of the market thinking should just calm down,” he said.

Although the market was still sensitive towards the latest move, he opined that fear would subside eventually as people started to digest and understand PBOC’s measure.

“The economy is not as weak as some people think and they don’t have to lower the currency to improve exports,” he added.

According to Stuart, a more “flexible” rate will promote trade and higher trade would boost economic growth, which is what the world needs.

HSBC Malaysia Global Trade and Receivables Finance head Vincent Sugianto said the ample liquidity of Malaysia’s financial sector resulted in interest rates and Malaysian companies can use that to promote Malaysian products.

The panel also urged Malaysian exporters to embrace the usage of yuan in trades to save costs and boost the efficiency of transactions.

Trading in yuan would increase the competitiveness of Malaysian exporters as more Chinese buyers prefer to trade in their own currency to mitigate foreign exchange risks.

On the other hand, Chinese exporters are ready to offer more attractive prices if the trades are settled in yuan. They expect strong growth of trades in yuan in the years to come.

HSBC Malaysia Global Markets head Alvin Kong said Chinese companies had become aware of the tools and products that allow them to form their hedging strategies.