Currency traders looking for their next big idea could do worse than talk to Wong, who runs a news stand in Hong Kong’s Central District.
Her business is one of many street stalls that line the city’s busy financial quarter, selling newspapers, magazines and bottled water to everyone from well-heeled executives to Chinese tourists on sight-seeing trips.
This varied clientele has turned Wong into an informal currency trader — and right now, she is betting that the Chinese yuan will weaken to parity against the Hong Kong dollar.
Photo: AFP
The yuan has lost more than 12 percent of its value against its neighboring currency over the past three years, putting it on course to hit parity for the first time since 2007. The decline has hurt spending by Chinese tourists, encouraged Hong Kongers to cross the border for shopping trips, and forced consumers and businesses across the city to adjust.
Wong has put up a sign on the side of her news stand, demanding that any customer who wants to pay in yuan accepts a one-for-one exchange rate with the Hong Kong dollar. Tourists previously balked at this rate but they are increasingly willing to accept it, she said.
Some are even asking her to give them a currency exchange without any goods changing hands.
Photo: AFP
The yuan has been dragged lower by a fragile Chinese economy facing deflationary pressure, capital outflows and evaporating bond yields. In contrast, the Hong Kong dollar — pegged to the greenback during a boom period for the US currency — is surging in value.
The currency shift has exacerbated pressure on Hong Kong, which suffered a 7.3 percent year-on-year contraction in retail sales in November last year, capping nine months of declines, latest official data showed.
The most bearish analysts think China’s currency could weaken near to 7.75 per US dollar by the third quarter, a move that would put the yuan close to the top of the Hong Kong dollar’s permitted trading band against the greenback.
There are some positives to the yuan’s decline, at least for those working in finance: Chinese investors chasing higher returns have rushed to buy overseas bonds, pushing southbound flows through a China-Hong Kong bond trading link to a two-year high last month The issuance of dim sum bonds, offshore notes denominated in China’s currency, has surged as borrowers look for cheaper funding options.
However, many people with ties to the city said the currency pair has already reached a pain point.
Edith, a Chinese studying for a masters degree at Hong Kong University, is among those who have been hit by the sinking value of the yuan against the Hong Kong dollar.
She expects to pay about 20,000 yuan (US$2,760) more for her degree than she previously calculated, due to the depreciation.
“My classmates and friends from the mainland are complaining about the stronger Hong Kong dollar,” Edith said, requesting to be identified by only her first name due to privacy concerns.
The move is also reigniting difficult questions about Hong Kong’s 41 year-old currency peg against the greenback.
Speculation about how long Hong Kong would maintain its dollar peg has raged for years, but with the greenback soaring and China’s government still trying to get its economy back on track, this talk has taken on extra importance.
Hong Kong Monetary Authority chief executive Eddie Yue (余偉文) tried to quell speculation earlier this month, declaring that “we have no intention and we see no need” to change the currency regime, but the statement appears to have done little to end talk about the future of the peg.
“Obviously in any business you should always have a plan B — let’s examine any other scheme that is possible,” said Hong Kong nightclub mogul Allan Zeman, referring to the peg. If the yuan weakens any further “we will be in trouble.”
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