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Offshore Yuan Bets Losing $3.5 Billion, Morgan Stanley Estimates

TRFs betting on yuan appreciation are losing money as China’s central bank guides the currency lower with weaker fixings and this week’s widening of the trading band allows greater scope for declines. Photographer: Brent Lewin/Bloomberg

March 20 (Bloomberg) -- More than $3.5b has been wiped off the value of offshore yuan structured products, Morgan Stanley estimates, as China’s slowing economy and mounting credit concerns weaken the currency.

* Losses on Target Redemption Forwards were probably in region

of $3.5b at an offshore exchange rate of 6.2 per dollar, a

level breached today in Hong Kong for the first time in

almost a year, the U.S. bank said in a research note today;

a slide to 6.38 is probable, a level that would lead to

losses of $7.5b, according to the note * “It’s inevitable the currency keeps weakening, and the

higher-volatility environment implies that the pace will be

quicker,” Geoffrey Kendrick, head of Asian currency and

rates strategy at Morgan Stanley in Hong Kong, said in a

phone interview today; “data has been weak, and we have

some credit concerns coming up” * Offshore yuan dropped 0.34% to 6.2073 as of 1:29 p.m. in

Hong Kong, according to data compiled by Bloomberg; that

extended its decline this month to 1.4%

For Related News and Information: Hedging $150 Billion Yuan Bets in Focus on Swings: China Credit NSN N2KB9Z6JIJUQ <GO> HSBC Sees Yuan Becoming Fully Convertible in Next 2 to 3 Years NSN N2O0S96S972H <GO>

To contact the reporter on this story: Justina Lee in Taipei at +886-2-7719-1579 or To contact the editors responsible for this story: James Regan at +852-2977-6620 or Andrew Janes

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