New Demand For RMB Loans Could Strain Hong Kong Liquidity

A research note from Jefferies analysts Krishna Guha and Joseph Dickerson titled “RMB/CNH Funding – Next Hot Spot?” of July 17, 2014 raises the possibility of demand for loans shifting out of the US Dollar into RMB, given that the appreciation in the RMB may have paused.

But this new demand could face a liquidity mismatch in Hong Kong due to the reduced inflow of CNH deposits following strength in CNH during recent months.

An HSBC report last week confirmed this, attributing this to “slowing new CNH generation as a result of a subdued currency performance, while overseas financing demand has been strong:”

“Putting the numbers into perspective, net...