Yuan trad­ing is busier than ever as Trump tar­gets China’s FX

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HONG KONG: Shanghai Fux­ing Group’s chair­man was ar­rested over­seas and es­corted back to China on sus­pi­cion of ma­nip­u­lat­ing stocks and other eco­nomic crimes, ac­cord­ing to Shanghai’s po­lice depart­ment.

Zhu Yi­dong, 36, re­turned to China on Wed­nes­day, the po­lice said in a state­ment on their of­fi­cial so­cial me­dia ac­count.

He had dis­ap­peared to un­known coun­tries af­ter Fux­ing missed an es­ti­mated 18 bil­lion yuan (US$2.6bil) of pay­ments to clients through pri­vate eq­uity prod­ucts from af­fil­i­ated firms and it­self, ac­cord­ing to state broad­caster China Cen­tral Tele­vi­sion.

The case high­lights the de­ter­mi­na­tion Chi­nese au­thor­i­ties to stamp out fi­nan­cial wrong­do­ing, as they seek to cut risk from the econ­omy and tamp down be­hav­ior that could un­set­tle mar­kets.

Last week Yang Zhi­hui, the chair­man of casino op­er­a­tor Land­ing In­ter­na­tional De­vel­op­ment Ltd, was ar­rested in Cam­bo­dia in re­la­tion to a cor­rup­tion in­ves­ti­ga­tion, Caixin re­ported.

Se­cu­ri­ties reg­u­la­tors have levied bil­lions of yuan in fines for mar­ket ma­nip­u­la­tion over the past year.

Au­thor­i­ties would check Fux­ing’s pri­vate fund as­sets and in­vestor list to defuse risks, the Shanghai po­lice said, with­out pro­vid­ing fur­ther de­tails.

Fux­ing and Li Wei­wei, the con­trol­ling share­holder of a separate Bei­jing-based as­set man­age­ment com­pany, used 25 in­sti­tu­tional ac­counts and 436 in­di­vid­ual ac­counts to ma­nip­u­late the price of Dalian In­su­la­tor Group Co, more than dou­bling the com­pany’s share price be­tween June 2016 and March 2017, ac­cord­ing to a July state­ment from the China Se­cu­ri­ties Reg­u­la­tory Com­mis­sion.

Fux­ing Group, which calls it­self a con­glom­er­ate on its web­site, said it op­er­ated in mul­ti­ple in­dus­tries in­clud­ing com­mer­cial real-es­tate, as­set man­age­ment, fi­nance and rare met­als. — Bloomberg NEW YORK: Turnover in the off­shore yuan has reached un­prece­dented lev­els, spurred by US Pres­i­dent Don­ald Trump’s broad­sides against Chi­nese cur­rency prac­tices and the pro­tracted trade dis­pute be­tween the world’s two big­gest economies.

On the FX trad­ing plat­form of Cboe Global Mar­kets, av­er­age daily vol­ume in dol­lar-off­shore yuan jumped to a record US$1.7bil in July, from US$421mil a year ear­lier.

EBS Mar­ket, NEX Group Plc’s FX trad­ing sys­tem, also saw a new high in off­shore yuan trans­ac­tions last month, ex­ceed­ing the pre­vi­ous peak by 17%.

The vol­umes, which rep­re­sent a por­tion of the off­shore yuan mar­ket, surged as the yuan slid for a fourth straight month.

The drop raised spec­u­la­tion that China was de­lib­er­ately weak­en­ing the cur­rency amid its in­ten­si­fy­ing tar­iff im­passe with Amer­ica.

Last week’s an­nounce­ment by the Peo­ple’s Bank of China’s (PBoC) that banks would re­sume use of the counter-cycli­cal fac­tor in set­ting the yuan’s daily ref­er­ence rate may fur­ther fuel ac­tiv­ity, in the view of Brad Bech­tel at Jef­feries.

The fix­ing ad­just­ment works to re­strain mar­ket in­flu­ences, mean­ing it will have to com­pete with forces such as tense trade ne­go­ti­a­tions and slow­ing Chi­nese growth. That tu­gof-war should in­crease vo­latil­ity, said Bech­tel.

“If any­thing, it cre­ates a more trade­able mar­ket,” said Bech­tel, the firm’s global head of for­eign ex­change. The PBoC is “push­ing back against what the mar­ket’s do­ing, but at the same time, there are still a lot of vari­ables.”

The off­shore yuan dropped 0.2% to 6.8360 per US dol­lar as of 11:39am in Hong Kong yes­ter­day. It has slumped about 6% since midJune as the two na­tions ex­changed tit-for-tat tar­iff threats, adding to swings in emerg­ing-mar­ket cur­ren­cies.

The pace of the de­cline prompted the PBoC to ask Chi­nese lenders to dis­cour­age “herd be­hav­ior” and mo­men­tum-chas­ing in the cur­rency.

The off­shore yuan’s weak­ness was likely driven by the same mo­men­tum-chasers that the PBoC was try­ing to cur­tail, ac­cord­ing to Mingze Wu, a cur­rency trader at INTL FCS­tone in Sin­ga­pore.

The off­shore yuan “has bet­ter ac­ces­si­bil­ity for spec­u­la­tors,” Wu said via e-mail. “As such, I would not be sur­prised if the in­crease in vol­ume has been mostly spec­u­la­tive driven.”

De­spite the re­cent de­clines, there’s no sign of in­tense po­si­tion­ing for fur­ther de­pre­ci­a­tion in the de­riv­a­tives mar­ket or sig­nif­i­cant cap­i­tal out­flows.

Over­seas hedge fund man­agers have been re­frain­ing from bet­ting against the cur­rency like they did a few years ago, and main­land in­di­vid­ual in­vestors are less keen on hoard­ing the dol­lar.

The trans­ac­tion vol­ume has also picked up in the on­shore mar­ket, which is more tightly con­trolled by the cen­tral bank and is dom­i­nated by main­land in­vestors.

Data from the China For­eign Ex­change Trade Sys­tem, an in­ter­bank trad­ing plat­form af­fil­i­ated with the PBoC, show that av­er­age on­shore yuan turnover in late July reached the high­est level since Jan­uary 2017.

“The trad­ing vol­ume will likely hold steady at the cur­rent lev­els as sentiment to­wards the cur­rency has sta­bilised, thanks to the re-in­tro­duc­tion of the counter-cycli­cal fac­tor,” said Ken Che­ung, Hong Kong-based se­nior Asian cur­rency strate­gist at Mizuho Bank Ltd. “In­vestors no longer feel the rush to cut their po­si­tions.”

The tur­bu­lence has made this sum­mer the busiest in years for Che­ung, with clients and me­dia in­quir­ing about the yuan’s de­cline and its im­pli­ca­tions.

Bech­tel can re­late. “Ac­tiv­ity lev­els def­i­nitely in­creased across the client base,” he said. “There are those who are al­ways in­volved or look­ing at it, but when it starts to move like this, a lot of folks jump on board.” — Bloomberg

Gen­dreau: All the noise of trade wars cre­ates a lit­tle bit of sentiment on Chi­nese con­sumers. — Bloomberg Small-time player: A vis­i­tor passes a model Air­bus SE A380 air­craft on dis­play at the Eti­had Group head­quar­ters in Abu Dhabi. Fitch ex­pects Eti­had to re­main the smallest among the three Per­sian Gulf car­ri­ers, in­clud­ing Emi­rates and Qatar Air­ways. — Bloomberg

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