Offshore Yuan Gains as Leung Seeks Beijing Support on Stock Link

The yuan traded in Hong Kong rose for a third day after Chief Executive Leung Chun-ying said he’ll seek support from China to kickstart a cross-border trading link for stocks.

The head of the city’s government said yesterday he will discuss the start date for the program that will connect the exchanges of Hong Kong and Shanghai when he is in Beijing this week for the Asia-Pacific Economic Cooperation meeting. U.S. Secretary of State John Kerry will attend the APEC meeting and President Barack Obama visits China next week. The People’s Bank of China raised the currency’s daily fixing by 0.06 percent, the most since Oct. 16, to 6.1503 per dollar.

“The stock connect provides a good reason for investors to be positive on the yuan, particularly in Hong Kong as demand for the currency is likely to rise,” said Daniel Chan, an analyst at Brilliant & Bright Investment Consultancy Ltd. in the city. “China would also prefer a stronger yuan ahead of high-level meetings with the U.S. to ease the political pressure.”

The offshore yuan rose 0.04 percent to 6.1191 per dollar as of 4:47 p.m. in Hong Kong, according to data compiled by Bloomberg. That took its advance this week to 0.14 percent. In Shanghai, the yuan closed little changed at 6.1146, China Foreign Exchange Trade System prices show. The onshore spot was 0.6 percent stronger than the fixing, within the 2 percent limit.

Stocks Link

Regulators have signaled work is almost complete for the start of the planned trading link of stocks, which will allow for a net 23.5 billion yuan ($3.8 billion) in daily cross-border purchases. Hong Kong Financial Secretary John Tsang reiterated today the city is ready for the program, while Shanghai Securities News last week cited Yao Gang, vice chairman of the China Securities Regulatory Commission, as saying that preparations were in the final stage.

Hong Kong has asked China for more quotas under the Renminbi Qualified Institutional Investor program, which allows yuan raised offshore to be invested in China’s domestic markets, Tsang said. The city also hopes the daily yuan conversion cap on residents will be lifted as soon as possible, he said.

Twelve-month non-deliverable forwards gained 0.04 percent to 6.2440 per dollar in Hong Kong, according to data compiled by Bloomberg. The contracts traded 2.1 percent weaker than the spot rate in Shanghai. One-month implied volatility in the onshore yuan, a measure of expected swings used to price options, was unchanged at 1.73 percent.

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