Published On: Wed, Oct 6th, 2010

HK Exchanges CEO: Hope To See Yuan-Denominated Share Listings As Early As 2011

Hong Kong Exchanges & Clearing Ltd. (0388.HK) Chief Executive Charles Li said Tuesday he hopes share listings in the city will be able to incorporate yuan-denominated tranches as early as next year, amid strong demand for the Chinese currency and yuan-linked products in the territory.

The head of the stock exchange operator said Hong Kong is working on a plan to boost yuan liquidity in the territory as more investment products denominated in the Chinese currency become available to local investors, underscoring Hong Kong’s emergence as an offshore yuan trading hub.

Li said the plan should help enable investors take part in yuan-denominated shares regardless of the amount of yuan they actually hold, so that issuers don’t suffer from lower listing valuations due to insufficient yuan liquidity. However, he didn’t elaborate on the stock exchange’s plans to introduce yuan-denominated shares in Hong Kong.

Under the plan, investors would be able to apply for yuan-denominated shares or other products using Hong Kong dollars through a specially created yuan liquidity pool, but when they exit their positions their holdings would be converted into Hong Kong dollars, Li said, reiterating comments he made last month.

Li didn’t elaborate on how the fund would be set up or who would manage it.

He said he believes policy makers in China would “potentially favorably consider” a proposal to boost yuan liquidity in Hong Kong because the pool is about “creating the need for (China’s) trading partners to begin to consider using renminbi.” He said the pool would only be used until enough yuan liquidity was in the system.

Financial institutions have launched a number of yuan-related products in Hong Kong since the government signed an agreement with China in July to remove some restrictions on yuan usage and its circulation in Hong Kong, part of the two sides’ efforts to work together to internationalize the Chinese currency.

Since the agreement was signed, Hong Kong has shepherded its first yuan-denominated investment fund and a yuan corporate bond issue for fast-food chain McDonald’s Corp. Certain banks in Hong Kong have also gained approval to participate in China’s interbank bond market.

Yuan deposits in Hong Kong totaled CNY130.4 billion at the end of August, accounting for just 4.9% of foreign-currency deposits in the city but up 26% from July, according to the Hong Kong Monetary Authority.

In comparison, overall deposits rose just 0.5% in August, the HKMA said.

-By Kate O’Keeffe, Dow Jones Newswires

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