This Hong Kong newsagent is preparing for a yuan crash.
(Bloomberg) — Traders looking for their next big idea could do worse than talk to Wong, who runs a newsstand in Hong Kong’s central district.
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Her business is one of many street stalls in the city’s bustling financial district, selling newspapers, magazines and bottled water to everyone from well-heeled executives to Chinese tourists on sight-seeing trips.
This diverse clientele has turned Wong into an informal currency trader – and now, the Chinese yuan is betting that its parity with the Hong Kong dollar will weaken.
The yuan has depreciated more than 12 percent against its neighbor over the past three years, putting it on track to hit parity for the first time since 2007. Consumers and businesses in the city have been forced to adjust for shopping trips.
Wong posted a sign on the side of her news site asking any customer who wants to pay in yuan to receive a one-to-one exchange rate in Hong Kong dollars. Tourists used to come at this rate, but the willingness to accept them is increasing, she said. Some are asking you to give them an exchange without exchanging any goods.
A weak Chinese economy facing devaluation, capital inflows and bond yields have been driven lower by the volatile yuan. In contrast, the Hong Kong dollar – which has been pegged to the greenback during a rally for the US currency – has been rising in value.
The latest data suggests that currency fluctuations have added to the pressure on Hong Kong, which saw a 7.3% annual drop in retail sales in November, the lowest in nine months, according to the latest data.
Most bullish analysts think the Chinese currency could weaken to 7.75 per US dollar in the third quarter, a move that would put the yuan in the greenback of the Hong Kong dollar’s allowed trading band.
The yuan’s fall has at least some positives for those working in finance: mainland investors chasing higher yields rushed to buy overseas bonds, sending southward flows in China-Hong Kong bond trading to a two-year high in December. Dim sum bonds, offshore notes, have rallied against China’s currency as borrowers seek cheaper financing options.