After a year of smooth and spectacular growth, the offshore renminbi market in Hong Kong is no longer complying with the bullish expectations of analysts. Instead, it has started to cause problems for banks and investors.

The market was first convulsed in September when investors abandoned their long-held belief that the Chinese currency would only ever rise against the US dollar. That idea had encouraged more than Rmb500bn ($80bn) of renminbi deposits to flow from the mainland to Hong Kong since the offshore market was launched in mid-2010.

Now, three months after international investors star-ted selling renminbi for dollars in numbers, stress is spreading to more esoteric corners of the offshore market where investors fund them-selves or hedge currency risks. And after renminbi deposits in Hong Kong fell in October for the first time in two years, some groups have been caught in a renminbi liquidity squeeze, cau-sing funding costs to surge.