Do Not Hedge Stocks With USD/CNY
- By Mirza Baig
- 2 min read
China’s tech stocks were hammered this month after a sweeping, multi-pronged crackdown by Chinese regulators.
Offshore listed stocks and ADRs, both widely held by foreigners, were hit hardest (Chart 1). This week, onshore stocks and the currency market seem to be under pressure. Also, unconfirmed media reports that the US government was considering restricting US residents’ investment in Chinese securities weighed on sentiment.
In the offshore CNH market, bets on a large devaluation of the renminbi are building. FX risk premia indicators such as the implied volatility, risk-reversal skew and CNH FX points rose sharply this week, and the premia paid for USD/CNH calls surged to the highest level this year. Sentiment is certainly fraying, though not yet extremely bearish.
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