Foreign media: if the yuan continues to depreciate Chinese companies will lose billions of dollars

According to the British Financial Times reported that analysts and investors warned that if the yuan continues to weaken , Chinese companies will suffer a loss of billions of dollars on complex hedging products .
      Mainland Chinese enterprises and global investors bought hundreds of billions of dollars worth of structured products , such products in the past year to benefit from the appreciation of the renminbi , but after the yuan fell to the lowest level since last July, is facing increasing pressure.

      Morgan Stanley (Morgan Stanley) Analysts pointed out that the way the bank to hedge these products means that , if below a certain mark level, could trigger more drastic decline in the RMB exchange rate .

      Such products are tracked offshore RMB (CNH). CNH can be freely traded , the focus of attention of international investors.

      Over the past week , onshore and offshore renminbi market are substantially weaker , worrying investors through the establishment of structured products and the carry trade exposure .

     RMB against the U.S. dollar appears the biggest weekly decline since 2005 , with the largest changes occurring on Tuesday .

     To start from the beginning , the bank sold about $ 350 billion of complex derivatives - " target redemption forward contracts " (Target Redemption Forward, referred TRF). According to analysts at Morgan Stanley , where about $ 150 billion in contracts pending . Most of these products are bought by Chinese companies .

      One investor said that the true size of this market is even greater , and has been in the past week on the RMB exchange rate movements had a " substantial impact ."

      TRF so that buyers benefited from a stronger yuan in the past few years, this has been a popular bet . Many people bet on renminbi relative to the U.S. dollar will become increasingly strong.

      Forex analysts warned that if the yuan -dollar exchange rate fell below the level of U.S. $ 1 = 6.20 yuan 's ( yesterday's exchange rate of 6.11 million yuan in the vicinity of $ 1 ) , hedging strategies may force banks to repossess the collateral , thus speeding down the yuan potential .

      "The potential loss TRF holder is , CNH every key changes in the top level of 0.1, and a loss would be about $ 200 million per month , " The analyst wrote. Given TRF contract period of 24 months, if the RMB consistently below the key U.S. $ 1 = 6.20 yuan level , the total loss will reach about $ 5 billion .

     " Even before the break through key levels , banks may require up to 30 billion dollars in collateral to cover potential losses , which hit China 's already strained corporate sector , " the analyst added.

      Barclays (Barclays) • currency strategist Hamish Pepper (Hamish Pepper) said that most of these products against the range of 6.20 to 6.30 yuan were sold at $ 1 , which means that in the event of any problems before the renminbi also need further decline of at least 1.5%.

     " Such products will feel a lot of pain , will depend on how the RMB exchange rate changes relative to the current level ."

      Chinese enterprises have been severely exposed to the RMB exchange rate lower, because in recent years foreign borrowing ( which is another form of arbitrage transactions ) total soared.

      University of Princeton (Princeton University) , Professor Shin Hyun Song (Hyun Song Shin) in the analysis of the Bank for International Settlements (BIS) data concluded : International Debt Chinese companies issued ( mostly denominated in U.S. dollars ) , the total amount from the end of 2010 about 500 soaring one hundred million U.S. dollars to about $ 220 billion in the last year .