It could take three to four months for the renminbi to stabilize on the foreign exchange markets and for investors to regain confidence in the currency, according to an executive with HSBC.
The exchange rate volatility is likely to slow the pace of investment products linked to the Chinese unit, but will boost the demand for hedging instruments, said Candy Ho, global head of renminbi business development at HSBC’s markets division.
She pointed to a decline of the issuance of dim-sum bonds last year, to 380 billion yuan, and said the trend is likely to continue in 2016, the Hong Kong Economic Journal reported.
HSBC believes RMB bond issuances offshore will decrease to about 260 billion to 300 billion this year.
In other comments, Ho noted that south-bound investment rose after China’s revamp of its foreign exchange regime on Aug. 11 last year.
The increased fund flows to Hong Kong suggest that mainland investors are keen to hedge against renminbi exchange risks via offshore assets, she added.
Despite some short-term choppiness, Hong Kong’s renminbi market will remain robust in the long term, Ho said.
The IMF’s inclusion of the Chinese currency in the fund’s Special Drawing Rights starting October this year and Beijing’s “one belt, one road” strategy will support the offshore RMB market, she said.
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