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Gradual Appreciation Is Opening The Hot Money Arbitrage Space.

2011/8/30 9:31:00 38

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Gradual Appreciation Of Hot Money Arbitrage Space

Authorized by the people's Bank of China

foreign exchange

According to the data released by the trading center, in August 29th, the middle price of the US dollar exchange rate in the inter-bank foreign exchange market was 1 yuan to 6.3883 yuan, and the RMB exchange rate once again hit a new high since the exchange rate reform.

According to reporters' calculations, since the entry of RMB in July, the appreciation rate has accelerated significantly. In nearly two months, the appreciation rate for the US dollar has risen to 1.3%.

Insiders say that the expectation that the RMB will continue to appreciate has given sufficient reasons for the continuous inflow of hot money, while the current price gap of the offshore shore market is about 200 basis points, which has opened the arbitrage window again.

Since the RMB exchange rate reform in July 2005, the renminbi has been revalued.

exchange rate

Reform has always followed the three principles, namely autonomy, controllability and gradualism.

From the start of the reform to August 29th, the RMB has appreciated nearly 30% against the US dollar, and the appreciation has reached 3.5% since 2011.

However, even though the appreciation has been realized, the market still has a clear expectation of RMB appreciation.

Shen Minggao, head of China research at Citigroup, said in a media interview that the yuan rose to around 5% this year. If China's inflation pressure is still relatively large, the possibility of RMB appreciation is even greater.

Shi Lei, research director of Ping'an securities fixed income division, has also written that in the eyes of the present, one option to control inflation is to raise the appreciation rate of the RMB against the US dollar under the weak dollar environment.

If the third quantitative easing policy is introduced in the United States, further reducing the sticky exchange rate between the RMB and the US dollar is a possible choice for monetary policy.

Ding Zhijie, Dean of the school of finance at the University of foreign trade and economics, said that the steady and small appreciation rate not only made the market clear expectations for the future direction of the RMB, but also led to capital inflow continuously.

More importantly, however, under the rapid development of the offshore market in Hongkong, the "hot money" arbitrage between activities between Hongkong and the mainland is more rampant.

Insiders say this is not true.

Trade

The amount of speculative capital between the mainland and Hongkong in the background is very huge, and the arbitrage amount of a paction may reach tens of millions.

Because of the fragmented market, the market exchange rate of offshore renminbi (CNH) in Hongkong has always been different from that of the mainland's onshore RMB (i.e. "CNY"). Taking the exchange rate of 29 days as an example, the fixed price of the US dollar / RMB (Hongkong) exchange rate announced by the Hongkong Financial Association is 6.3686, which is 197 basis points difference with the data released by the China foreign exchange trading center.

The report of the ANZ bank last weekend clearly pointed out that "the spot price of RMB at home and abroad has a price difference of about 200 basis points, and the arbitrage window has been opened again."

The rapid expansion of the offshore market in Hongkong will give greater scope to arbitrage funds in the future.

The industry expects that the size of RMB deposits in Hongkong will be bigger and bigger, and it is estimated that it will increase from the current about five hundred billion yuan to trillions of dollars in the next 3 to 5 years.

The daily trading volume of the renminbi on the offshore spot market is almost zero compared to about a year ago, and the volume has soared to about $1 billion 300 million.

On the other hand, China has accelerated the pace of RMB internationalization and capital account liberalization.

In mid August, the introduction of the R-QFII mechanism meant allowing foreign qualified investors to invest in the domestic securities market. The announcement of the Ministry of Commerce on the issue of cross border direct investment (FDI), which meant that foreign investors were allowed to launch direct investment activities in China in accordance with the lawful Renminbi obtained from abroad, and the FDI policy for a long time was officially frozen.

The relaxation of capital account control in some areas will reduce the cost of short-term international capital flowing into China.

With the gradual opening of capital account, the possibility of hot money entering the country through capital channels may surpass trade channels in the future.

"In 2011, the low net interest rate of arbitrage funds may be increased due to factors such as spreads, foreign exchange and overseas financing costs. Overseas financing activities of domestic enterprises may become more active.

It is estimated that in 2011, China's balance of payments will continue to show a large surplus, and the operation of the balance of payments may show some volatility.

The foreign exchange bureau has pointed out in the 2010 annual report of the State Administration of Foreign Exchange released in June this year.

Regulators have also focused on "high pressure against hot money".

According to the data released by the State Administration of foreign exchange, in the first half of 2011, a total of 1865 illegal foreign exchange cases were investigated, involving more than 16 billion US dollars, representing an increase of 26.2% and 26.9% respectively over the same period last year.