StanChart warns on new yuan investments
Standard Chartered Bank (Hong Kong) has warned investors to avoid putting all their eggs in one basket when it comes to yuan assets, because a flood of new products offers opportunities but also carries risks.
New yuan or renminbi investment offerings in Hong Kong include so-called dim sum bonds and yuan insurance products.
Last month renminbi qualified foreign institutional investor (RQFII) schemes were launched, allowing Hong Kong investors to buy mainland bonds and equities.
While returns on the new investment tools are often much higher than yuan time deposits, they also bear higher risks, the bank warned.
Investors often overlooked the fact that the yuan could fall as well as rise, with many thinking it was a one-way bet, said Cindy Fu, Standard Chartered's regional head of capital market products and securities brokerage wealth management.
The yuan's appreciation would slow to 2 per cent this year from 6.6 per cent in 2011, Fu said. She also predicted a soft landing on the mainland, with gross domestic product rising 8.1 per cent this year, from more than 9 per cent in 2011.
Although overall yuan deposits in Hong Kong dropped to 590 billion yuan (HK$725.87 billion) in December from 620 billion yuan in November, Fu said appetite for RQFII remained healthy. The bank has offered four RQFIIs since January, with one already fully subscribed.
Standard Chartered is one of 12 brokerages that won RQFII licences from mainland authorities, sharing a quota of 20 billion yuan. All the funds in the RQFII scheme are required to allocate at least 80 per cent of that to corporate or government bonds on the mainland. The remaining 20 per cent can be held in equities or other assets.
RQFIIs enable individual investors to buy onshore yuan bonds, while dim sum bonds mainly cater to institutional investors.
Standard Chartered has raised its yuan time deposit interest rate to 2.5 per cent and narrowed the bid/offer spread to lure more new deposits this year.
'We are positive about the prospects for long-term growth in yuan deposits in Hong Kong, despite a short-term drop in yuan deposits,' said Fu.
Interest in yuan products is also rising because mainland banks' dim sum notes are maturing at a record pace and their cost of refinancing is increasing after yields doubled in the past five months.
HSBC has estimated that at least 55.6 billion yuan of certificates of deposit, mostly sold by mainland lenders' Hong Kong units, will mature this year, making it harder for banks to meet demand for yuan loans.