2015-02-12

Yuan Flowing Into China

Offshore investors holding yuan are shifting from bonds into Mainland equities to avoid currency risk, while issuers are shunning the offshore bond market as demand for yuan bonds tumbles.

SCMP: Dim sum bonds slump 53pc on bearish yuan bets
Offshore yuan bond sales have slumped 53 per cent this year as borrowing costs in Hong Kong surged on bearish bets against the mainland currency.

Dim sum note issuance so far this year has fallen to 26.2 billion yuan (HK$32.5 billion), compared with 55.6 billion yuan in the same period last year. The yuan's overnight interbank lending rate in Hong Kong has surged 204 basis points since the end of last year and touched a record 8.6 per cent on February 6. That is more than triple the past year's average of 2.5 per cent, and came as money flooded from the city into the Shanghai stock market through the stocks through train.

Options markets are the most bearish on the yuan in five years.

...The anti-graft campaign has failed to halt the benchmark Shanghai Composite Index's 43 per cent rise over the past six months. That encouraged investors with offshore yuan to buy onshore equities through the Shanghai-Hong Kong stock through train. Foreign investors have used the programme to buy about 100 billion yuan of Shanghai stocks, while 24 billion yuan has flowed into Hong Kong equities, according to the exchanges.

Meanwhile, Tencent completed a $2 billion bond offering:
Technology giant Tencent announced the completion of US$2 billion bond issue on under the company’s US$5 billion medium-term note programme that began in April last year.

Of the total issue, US$1.1 billion will be 2.875 per cent senior notes due 2020 and the other US$900 million will be 3.8 per cent senior notes due 2025, issued to professional investors only.

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