World Economy

China to Extend FX Trading to Overlap With London

China to Extend FX Trading to Overlap With LondonChina to Extend FX Trading to Overlap With London

China’s foreign exchange market will “soon” extend the trading hours for the yuan to 23:30 local time (1530 GMT) to overlap with European trading hours, three sources with direct knowledge of the matter said on Wednesday, According to Reruters.

The change is seen helping Beijing advance its project to encourage more international use of the yuan and support China’s case for the International Monetary Fund to include the yuan in its currency basket.

“The move will be a big boost to the yuan’s inclusion in the IMF’s SDR basket,” said Joey Chew, Asian FX Strategist at HSBC in Hong Kong, referring to special drawing rights.

“The IMF has mentioned that it had concerns on yuan liquidity during London trading hours because it calculates the FX value of SDR basket currencies at 12pm London time when there is no trading in China’s onshore market at present.”

The China Foreign Exchange Trade System, managed by the central bank, currently closes at 16:30 local time (0830 GMT).

That has kept the onshore market out of sync with London, a major centre of offshore yuan trade, and has also given offshore markets a window to trade on policy changes announced after domestic markets are closed.

“The change will make the yuan move more in line with international markets, in particular European markets, and will make it more convenient to absorb international reactions to China’s policy changes, which are typically announced after the Chinese markets close,” said a senior trader at a Chinese commercial bank in Shanghai.

The People’s Bank of China did not immediately respond to requests seeking comment. The sources declined to be named due to the confidentiality of the matter.

Chinese President Xi Jinping is due to visit London next week, where UK officials hope to attract Chinese investment and win concessions for British firms - including banks - in mainland markets.

However, it is unclear how much real impact the extended hours would have on investor sentiment in the near term.

Offshore markets in Hong Kong - the largest centre of CNH trade - have struggled in the aftermath of a surprise devaluation of the yuan in August. That left investors worried that economic growth was slowing down faster than previously thought and that other devaluations may follow.

At the same time, most foreign investors are unable to access the onshore forex market, limiting hedging and arbitrage opportunities.

“Most foreign market players in New York and London still don’t have direct access to the market,” said Chew of HSBC.

“It is more a forward-looking measure that facilitates future trading when China further opens up capital account.”