This Hong Kong newspaper seller is bracing for a yuan collapse
(Bloomberg) — Currency traders looking for the next big idea could do worse things than talking to Huang, who runs a newsstand in Hong Kong’s Central District.
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Her business, one of many street stalls in the city's busy financial district, sells newspapers, magazines and bottled water to everyone from wealthy executives to sightseeing Chinese tourists.
This diverse clientele has allowed Huang to become an informal currency trader – currently, she is betting that the yuan will weaken against the Hong Kong dollar.
Over the past three years, the yuan has depreciated by more than 12% against the currencies of neighboring countries, reaching parity for the first time since 2007. The depreciation of the yuan hurts spending by tourists from mainland China and encourages locals to travel across the border. Boundaries on shopping trips have forced consumers and businesses across the city to make adjustments.
Ms. Huang posted a sign on the side of her newsstand asking any customers who wanted to pay in yuan to accept a one-for-one exchange rate for Hong Kong dollars. Visitors were previously hesitant about the speed, but they are increasingly willing to accept it, she said. Some even asked her to provide them with currency exchange services without changing hands of any goods.
The yuan fell as China's economy is fragile, facing deflationary pressures, capital outflows and evaporating bond yields. In contrast, the Hong Kong dollar, which was pegged to the U.S. dollar during the U.S. dollar boom, is appreciating.
Currency movements have added to pressure in Hong Kong, with retail sales contracting 7.3% year-on-year in November, the latest data showed, ending nine consecutive months of declines.
The most pessimistic analysts believe the yuan could fall closer to 7.75 against the dollar by the third quarter, a move that would bring the yuan closer to the upper end of the Hong Kong dollar's trading range against the greenback.
There are some positives to the depreciation of the yuan, at least for those in the financial world: Mainland investors seeking higher returns have rushed to buy overseas bonds, driving southbound inflows through the China-Hong Kong bond trading channel to a two-year high in December. Issuance of dim sum bonds, offshore notes denominated in yuan, has surged as borrowers look for cheaper financing options.