Offshore renminbi funding costs in Hong Kong sink to record low

[HONG KONG] The cost to borrow the offshore renminbi in Hong Kong dropped to the lowest since data became available in 2013, putting pressure on the Chinese currency even as the US dollar weakens.
The one-month Hong Kong interbank offered rate for the renminbi – known as Hibor – dropped 11 basis points to 1.46 per cent, according to official data.
The record low rate is basically a sign of how easy it is for traders to source the Chinese currency in the city and allows them bet on further renminbi weakness. It comes amid expectations Beijing will keep liquidity ample to boost its economy and allow a managed renminbi depreciation to offset the impact of US tariffs.
The offshore renminbi slipped as much as 0.3 per cent on Tuesday (Apr 22) to around 7.31 per US dollar. It has recovered around 2 per cent from a record low hit this month.
Weakness in the greenback has lessened the need for the People's Bank of China to step in to steady the renminbi. Like many global peers, the currency has benefited from a global exodus from US assets that has weighed on the US dollar.
'The offshore renminbi's borrowing costs declined as the US dollar is too weak and there is no need for PBOC intervention to support the renminbi,' said Ju Wang, head of greater China FX & rates strategy at BNP Paribas. 'A loose funding situation offshore is also helpful for China to keep a weak renminbi to counter tariff risks, rather than a strong one.'
BT in your inbox
Start and end each day with the latest news stories and analyses delivered straight to your inbox.
Sign Up
Sign Up
Recent inflows from the mainland into Hong Kong's stock market have also helped to replenish the offshore renminbi's liquidity and pushed Hibor lower, according to Ken Cheung, chief Asia FX strategist at Mizuho Bank.
Mainland investors purchased a net HK$14.1 billion (S$2.4 billion) of these shares on Tuesday, set for the biggest daily amount in almost two weeks. They rushed to the offshore market this month to snap up tech shares and also due to some Hong Kong stocks' cheaper pricing compared with onshore peers.
The PBOC is seen allowing the renminbi to depreciate amid escalating trade tensions with the US. The Chinese central bank guided the currency lower by cutting its daily reference rate beyond a closely watched level this month, stoking bets Beijing may weaken the renminbi even further to counter some impacts of the tariffs.
'Cheap offshore renminbi funding cost corresponds with PBOC's recent onshore fixing guidance for moderate renminbi weakness,' said Fiona Lim, a senior foreign-exchange strategist at Malayan Banking. 'Drivers such as economic pressure at home, trade conflicts and broader US dollar weakness act as counterbalancing factors to keep renminbi somewhat stable.' BLOOMBERG

Try Our AI Features

Explore what Daily8 AI can do for you:

Learn with AIFact CheckingText to SpeechAI Summary

Related Articles

Business Times

4 hours ago

• Business Times

Currency traders ditching the US dollar for euro on option bets

The euro is taking on a bigger role in the global currency options market as traders skirt around the US dollar given the risks from unpredictable US policy and a global trade war. There's been a shift in trading volumes. Around 15-30 per cent of contracts tied to the US dollar versus major currencies were switched to the euro, looking at data from the Depository Trust & Clearing Corporation for the first five months of this year versus the final five months of 2024. There are also signs that the euro is being used as a haven – traditionally the US dollar's role – and for bets on big moves. While deals involving the US dollar still dominate in the US$7.5 trillion-a-day currency market, this could be early evidence that the greenback is facing greater competition as the world's reserve currency. Traders are sidestepping the US dollar after its biggest slump in years, with Europe's common currency looking like a key beneficiary as the region's markets seize on billions in government stimulus spending. 'If we're moving to an environment in which the European flow story is more important, then we could be moving to an environment in which it's euro pairs which are driving everything,' said Oliver Brennan, options strategist at BNP Paribas. The growing optimism towards European assets is also seen in the stock market. Wall Street strategists expect loosening monetary policy and increased government spending to boost the Stoxx Europe 600 Index by 3 per cent by the end of the year, handing investors annual returns of about 10 per cent, according to a survey conducted by Bloomberg. The euro, in the meantime, has rallied 11 per cent against the US dollar so far this year, hitting its highest since 2021 at above US$1.16. The US dollar has slid against every major currency, with a gauge down over 7 per cent to its lowest since 2022. That's undermining trust in US assets. BT in your inbox Start and end each day with the latest news stories and analyses delivered straight to your inbox. Sign Up Sign Up And the slump may not be over yet. Hedge fund heavyweight Paul Tudor Jones just predicted another 10 per cent drop for the US dollar over the next year. Risk reversals, a gauge of options sentiment, are becoming increasingly negative on the US dollar against the yen, whereas they are turning less bearish on euro-yen – a 'really important signal' on the euro for Brennan. As markets question the US dollar's stability, implied volatility in the euro against the yen is looking the calmest in nearly four years relative to swings between the greenback and Japanese currency. 'The market is thinking that dollar-yen will be more volatile than euro-yen in a negative market shock, which is the opposite to how the market has traded these events in the past,' said Brennan. 'If that's the thinking, then it means the market sees the euro as more of a safe haven than the dollar.' The cost of options is also a driver, said Ben Ford, currency strategist at Macro Hive. While implied volatility generally has eased after spiking in April's market chaos, it stands at nearly 11 per cent over three months for dollar-yen, compared with under 9 per cent for euro-yen. 'The market is finding cheaper ways to express its view, especially given the view is probably for euro outperformance,' Ford said. Traders also seem to be favouring the euro over the US dollar when it comes to hedging or betting on big directional moves on the yen. That's evident in so-called 10-delta fly spreads, a gauge of demand for outsized swings, where the gap between euro-yen and dollar-yen has been steadily widening since April. Of course, the US dollar has been written off many times before. Just at the start of this year, the euro was languishing near parity with the greenback, with many investors certain the common currency's value would fall below its US peer. Instead Trump's April's tariff announcements saw investors dump US dollar assets. While US stocks have recovered since then, the dollar risk premium remains elevated, and it may require a return to US exceptionalism to reverse the trend, according to Tanvir Sandhu, chief global derivatives strategist at Bloomberg Intelligence. Meanwhile, the European Central Bank's President Christine Lagarde has called on policymakers to seize the moment and increase the euro's global profile. French officials were also reported to be lobbying for additional measures aiming at raising the currency's importance. 'There's a push and a pull – the pull has been that there's potentially more safe assets to buy in Europe and more growth expectations in Europe,' said Brennan. 'And the push has been tariff uncertainty, risks to US exceptionalism, and the macro story.' BLOOMBERG

Business Times

6 hours ago

• Business Times

Hong Kong stock rally shakes up investor playbook for China

Wall Street entered 2025 with bullish bets on onshore Chinese stocks, counting on Beijing's stimulus drive to cushion the blow from US tariffs. Six months in, they couldn't have been more wrong. Blame it on the breakthrough by DeepSeek in artificial intelligence (AI) that suddenly turned the tide in favour of Chinese shares listed in Hong Kong. With persistent economic woes battering the onshore market, the Hang Seng China Enterprises Index has beaten the CSI 300 Index by nearly 20 percentage points so far in 2025, heading for the biggest annual outperformance in two decades. Strategists at Julius Baer and Morgan Stanley are among those expecting the Hong Kong market's lead to continue. A slew of new hot listings, including bubble tea maker Mixue Group and battery giant Contemporary Amperex Technology, has reignited global interest towards the financial hub and expanded investment options. Mainland investors have poured nearly US$90 billion into Hong Kong stocks this year, already nearing 90 per cent of the whole amount for 2024. The sector structure in Hong Kong 'is also becoming more comprehensive with recent listings and upcoming IPOs', said Richard Tang, China strategist at Julius Baer. 'H-shares are likely to continue outperforming A-shares driven by global rebalancing flows and strong Southbound flows,' he added, referring to Hong Kong and mainland-listed stocks, respectively. As the Hang Seng China gauge has gained 17 per cent this year, the CSI 300 Index has shed more than 2 per cent. Analysts attribute the weakness to the onshore market's composition – heavy on property, financial and traditional consumption stocks – which are more reliant on domestic demand. Tech heavyweights including Alibaba and Tencent are listed in Hong Kong. Despite China's unexpectedly strong retail sales in May, deflationary forces and a housing slump persist. Even as trade tensions continue to simmer, the big bang stimulus from Beijing that some investors had hoped for has yet to materialise. BT in your inbox Start and end each day with the latest news stories and analyses delivered straight to your inbox. Sign Up Sign Up A key source of support for the A-share market has also subsided. After actively propping up stocks early April as tariff shocks hit, state funds have been notably absent, according to Bloomberg's analysis of exchange-traded funds purchased by Central Huijin Investment. Meanwhile, things have been coming together for Hong Kong. HSBC expects mainlanders' purchases via the southbound stock connect to reach US$180 billion this year, an unprecedented amount. A reassessment of China's tech potential has driven a re-rating of stocks in Hong Kong. The Hang Seng China gauge now trades at 9.3 times its forward earnings estimates, above a five-year average of 8.5 and sharply higher than the 2024 low near a ratio of six. 'More single-stock opportunities related to AI and new consumption, particularly the larger caps, are listed in Hong Kong,' Morgan Stanley strategist Laura Wang wrote in a note earlier this month. 'Some of the long-term well-liked A-share companies are choosing to come to Hong Kong for dual-listing.' The steep underperformance of A-shares, however, means there may be room for catch-up. The premium that onshore stocks have long commanded over Hong Kong peers has narrowed to about 30 per cent, below a five-year average of around 42 per cent. Fiscal stimulus could revive interest in beaten-down sectors onshore, such as consumer staples. There's also an array of hardware tech firms that should benefit from Beijing's push for self-sufficiency. 'A-shares still have investment appeal,' said Agnes Ng, portfolio specialist at T Rowe Price. 'If China's economic growth slows in the second half and stimulus is deployed, A-shares would benefit directly.' Yet the limited pool of attractive megacap stocks onshore means the recovery will once again hinge on if and when Beijing will deploy greater stimulus. That lingering uncertainty will likely keep investors favouring Hong Kong for the time being. 'H-shares are typically higher beta due to the index make-up – and in an up year are likely to outperform,' said Robert Mumford, investment advisor at GAM Investments. 'The end-goal of a range of policy stimulus is to increase consumption, which is the core underlying business of the Internet platform companies. Hence, we are more positive on H shares versus A.' BLOOMBERG

AsiaOne

9 hours ago

• AsiaOne

Lawrence Wong heads to China for first official visit as PM, Singapore News

BEIJING — Prime Minister Lawrence Wong will make a five-day official visit from June 22 to China, where he will seek to chart the strategic direction of bilateral ties with Chinese leaders. This will be his first trip to China since taking office in May 2024. In Beijing, he is scheduled to meet the country's top three leaders — President Xi Jinping, Premier Li Qiang and National People's Congress chairman Zhao Leji. The trip will allow both sides to reaffirm their commitment to strengthening ties and is 'an opportunity for leaders to discuss bilateral issues as well as regional and global developments', the Prime Minister's Office said on June 22. The visit comes as Singapore and China mark the 35th anniversary of diplomatic relations. In 2023, they upgraded ties to an 'All Round High Quality Future Oriented Partnership'. PM Wong will also travel to Tianjin – a port city about 1.5 hours south-east of Beijing by car — to attend an event commonly known as Summer Davos. He will take part in a dialogue with World Economic Forum (WEF) president Borge Brende. The official name for Summer Davos is the WEF Annual Meeting of the New Champions. Although this is PM Wong's introductory visit to China in his new capacity as head of Singapore's fourth-generation leadership, he is returning to familiar ground. Since entering politics in 2011, he has visited China almost every year except during the Covid-19 pandemic. His previous China-related roles included co-chairing the Singapore-Sichuan Trade and Investment Committee and overseeing the Tianjin Eco-City when he was Minister for National Development. He last visited China in December 2023, when as Deputy Prime Minister he co-chaired the Joint Council for Bilateral Cooperation with Vice-Premier Ding Xuexiang. Following his appointment as Prime Minister in 2024, DPM Gan Kim Yong took over that role. Singapore has prioritised keeping ties with China warm through regular high-level engagements. Senior Minister Lee Hsien Loong visited China in November 2024 and met President Xi. Economic links between the two countries remain strong and mutually beneficial. China has been Singapore's largest goods trading partner for over a decade, accounting for about 13 per cent of the Republic's global goods trade in 2024. Singapore is China's largest foreign investor. For this trip to China, PM Wong will be joined by a new member of his Cabinet — Acting Minister for Transport and Senior Minister of State for Finance Jeffrey Siow — who entered politics in the May 2025 General Election. Another new face is Dr Syed Harun Alhabsyi, a former Nominated Member of Parliament who contested the 2025 GE as a People's Action Party candidate. He was appointed in May as Senior Parliamentary Secretary in the Ministry of Education and the Ministry of National Development, and will be sworn in later in 2025. Other members of PM Wong's delegation include Minister for Foreign Affairs Dr Vivian Balakrishnan, Minister for Sustainability and the Environment and Minister-in-charge of Trade Relations Grace Fu, and Senior Minister of State for Foreign Affairs and Home Affairs Sim Ann. After the official visit, PM Wong will be on leave on June 27, his office said. While he is away, DPM Gan, who is also Minister for Trade and Industry, will serve as Acting Prime Minister from June 22 to 25. Coordinating Minister for National Security and Minister for Home Affairs K. Shanmugam will take over from June 26 to 27. ALSO READ: French President Macron and PM Wong sample local fare at Lau Pa Sat; sign deals on defence, AI at summit This article was first published in The Straits Times . Permission required for reproduction.