Need seen for hedging services to offset volatility

Growing demand for the yuan in trading among local companies and in global trade is expected to continue despite increased volatility in the mainland currency, spurring the need for yuan hedging services to help offset potential losses caused by short-term currency fluctuations.

A sharp fall against the US dollar onshore and offshore - down 1.46 per cent on the month - made the yuan the worst-performing currency within emerging Asia last month.

The People's Bank of China's benchmark yuan rate to the US dollar trended higher last month, and this was interpreted by the market as a signal that the central bank is ending the yuan's one-way movement of the past decade and introducing two-way trading in the currency.

"China has entered a transitional period for the [economy's] reform," said Chris Leung, a senior economist at DBS Bank. "It is just like surgery on the economy to stabilise its blood pressure."

"There will be ups and downs for the currency but the direction is upwards," he said, adding that he expected more demand for Chinese currency hedging services.

Wing Lung Bank treasurer Terry Siu Kai-hung said some clients concerned about the depreciation of the yuan asked about the possibility of hedging the currency, while others instead chose to buy more yuan.