Chinese companies' hedging activities spike as commodity prices jump - data

By Kitco News / October 25, 2021 / www.kitco.com / Article Link

SHANGHAI, Oct 25 (Reuters) - Corporate China's hedging activities spiked to a new high, according to consultancy data, as the cost of raw materials soared and as China's financial regulators urged local businesses to cope with higher market volatility.

The number of China-listed non-financial companies using hedging tools such as futures and options to limit market risks rose to 793 at the end of the third quarter, up 51.6% from one year ago, public data gleaned by risk-management consultancy D-Union shows.

Still, they account for just 18% of China's nearly 4,500 publicly traded companies. In the United States, roughly 80% of companies on the benchmark S&P 500 stock index regularly engage in hedging activities.

China's factory gate inflation in the third quarter rose to a record on soaring commodity prices due to output curbs caused by a power crunch at home amid increased demand for coal and metals as world economies reopened following easing of COVID-19 restrictions.

Chemicals, electronics, mechanical equipment and non-ferrous metals are the industries most heavily engaged in hedging practices, the data showed. Those sectors are also most vulnerable to volatility in resource prices.

Also, as the central bank gradually loosens its reins on the yuan, China's financial regulators have been stressing the importance of being “risk-neutral” in the foreign exchange market and convincing local businesses to hedge.

The number of forex-related hedging activities by listed non-financial firms rose to 1,063 as of the end of the third quarter from 862 at end-2020.

China's yuan has witnessed increasing two-way volatility here, as the forex regulator repeatedly urge companies to avoid "procyclical" and "naked" activities in managing their exchange rate risks.

Big companies, defined by D-Union as those with revenues exceeding 1 billion yuan ($144 million), are the dominant users of hedging tools. (Reporting by Jason Xue and Andrew Galbraith; Editing by Bernadette Baum)

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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