Hong Kong Yuan Deposits Drop by Most on Record After Devaluation

Yuan deposits in Hong Kong fell by the most on record in September after China’s surprise devaluation spurred a move out of assets denominated in the currency.

Savings fell 84 billion yuan ($13 billion) from August to 895 billion yuan, the Hong Kong Monetary Authority said in a statement on its website on Friday. That’s the biggest monthly decline since the city’s lenders started taking deposits in the Chinese currency in 2004. Hong Kong, which has the world’s largest offshore yuan holdings, handled 738.6 billion yuan of trade settled in the currency in September, up from 727.9 billion yuan in the previous month.

The onshore yuan tumbled 2.6 percent in August in the biggest monthly slide since 1994 as the devaluation on Aug. 11 fueled concern the authorities would keep weakening the currency to aid exports and boost economic growth. Asset reallocation away from the yuan has spurred demand for the Hong Kong dollar, prompting $9.2 billion of greenback purchases by the city’s monetary authority in September to prevent the currency from rising beyond the HK$7.75 upper limit of its peg to the greenback.

The drop in yuan deposits "partly reflects the change in market expectations toward the yuan’s exchange rate," the Hong Kong Monetary Authority said in an e-mailed statement on Friday. "According to the banks, clients’ yuan deposits are still on the downward trend in October, but the drop is expected to be smaller than September’s. That could probably be due to a more stable yuan exchange rate."

The yuan in Shanghai rallied 0.3 percent in September and 0.6 percent in October as the People’s Bank of China supported the exchange rates in both onshore and offshore markets by selling the dollars. In Hong Kong, the currency climbed 1.8 percent over the two months.

Before it's here, it's on the Bloomberg Terminal.