Use of euro-renminbi options surges
Rising renminbi trade settlement and a sliding euro are fuelling a surge in hedging between the two currencies both by multinationals and investors.
Daily trading volume in euro-renminbi options has risen from about €100m at the start of the year to at least €300m now, according to estimates from HSBC, as European corporate clients and fund managers increasingly look to manage their exposure to the Chinese currency. On busy days, that figure can rise as high as €600m, the bank said.
“As more and more corporates have trade settlement in renminbi, they don’t necessarily want to go through the dollar. They want the direct conversion,” said Andrew Sharkey, head of FX options trading in Asia for HSBC, one of the biggest players in the market.
FX options products allow companies to reduce FX risk by buying the right to buy or sell a currency during a fixed period and at an agreed price. These contracts typically run for six to 12 months in the offshore renminbi market.
The pick-up in hedging coincides with an increase in two-way volatility in the renminbi. Earlier this year the renminbi experienced a sharp slide, during which it lost as much as 3.8 per cent against the US dollar in just a few weeks.
European companies with large sales in China – such as luxury goods groups and carmakers – have been among those most active in hedging their exposure to the renminbi.
Source: FT- Use of euro-renminbi options surges
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