Fri, Jun 15, 2018 – 10:44 AM

[HONG KONG] China’s currency has had a bumpier ride in the past several weeks than it’s seen since it stabilised against the US dollar in 2017, and further turbulence may be in store as companies prepare to make a welter of dividend payments abroad.

Offshore-listed Chinese firms will hand out US$19.6 billion of dividends in overseas currencies in the three months through August, according to data compiled by Bloomberg. While some of the payments will be made from existing foreign-exchange holdings, some conversions from yuan will be needed, contributing to volatility, market players say.

After a long stretch of gains from 2017 to early 2018, the yuan lately has been confronting a resurgent US dollar, thanks to rising US Treasury yields. China’s currency dropped the most since 2016 last month, when its foreign-exchange reserves saw the first back-to-back drop in more than a year. On the flip side, depreciation has been limited by overseas investors’ increasing interest in Chinese securities, with net bond inflows the past 15 straight months.

“The yuan will likely weaken and become more volatile within a short period of time in the coming months due to the dividend payments,” said Gao Qi, a currency strategist at Scotiabank in Singapore.

“That won’t lead to sustained depreciation or capital outflows – the yuan will be supported as foreign investors keep adding Chinese bonds.”

Chinese companies’ dividend payments over the three months through August will be 23 per cent greater than the same period last year, according to Bloomberg’s calculations based on exchange filings. Hong Kong-listed Chinese lenders are among the biggest payers. China Construction Bank Corp will hand out US$4.2 billion in August, when Bank of China pays US$2.1 billion, the filings show.

Analysts expect the yuan, which is still up 1.4 per cent for 2018, to ride out the volatility and end the year at 6.4 per US dollar, a Bloomberg survey shows. The currency slumped 0.27 per cent to 6.418 as of 9.37am in Shanghai.

“There will be a quick bout of depreciation pressures” due to the dividend payouts, said Xiao Lisheng, a Beijing-based researcher at the Chinese Academy of Social Sciences.

“As soon as the round of declines are out of the way, companies will start to buy the yuan again, supporting the exchange rate.”


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