The overall market sentiment is risk-on. The S&P 500 index (US 500) is getting close to the all-time high. Oil is recovering quickly from its recent losses.
Chinese companies hurry to hedge as Yuan swings start stinging
Heavily affected by the Yuan's sudden leapt in 2017, many Chinese companies are starting to trade currency derivatives for the purpose of hedging risks. However, many mainland companies are still exposed to fluctuations in China's extremely volatile Yuan.
For years Chinese companies have been accustomed to a steady Yuan, which moved in one direction for a long time. Obviously, Yuan hedging markets aren’t developed enough yet, mostly suppressed by the key bank's severe requirements for hedging as well as the limited participation of speculators, not to mention large state-owned companies capable of making markets more liquid.
Volatility has inched up steadily since 2015 right after the PBOC made up its mind to let market forces enjoy a greater sway in the Yuan's direction. Additionally, China’s major financial intuition clamped down on capital flows. The bank also became more unclear and uncertain in the way it sets the Yuan’s value.
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