Yuan products - a shopper's guide
There has been an expansion in the number of ways retail investors can gain exposure to China's currency, writes Kevin McQueen
The term 'internationalisation of the yuan' has been much heard of late and brings delight to Hong Kong ears, promising as it does the prospect of a steady flow of opportunity to benefit the city's economy.
The pace of change has not only been fast, but is escalating at an unprecedented level since the first yuan bond was launched in Hong Kong just two years ago. And investors should take heart that the market is becoming more liquid. While the individual investor may not get excited about trade settlement in yuan, it is a crucial component in its development as an international currency.
The market has more "depth" to it says Vishal Goenka, head of local currency and global credit trading for Asia at Deutsche Bank. "This is positive," he says, adding that what we see in Hong Kong in terms of yuan products is a fully functioning credit market if not a foreign exchange market - yet. For the present, he foresees an increase in bond issuance as investors seek greater exposure to the yuan.
In a report released last October, Deutsche noted that China's importance to the global economy stands in marked contrast to the importance of its currency in global trade - just 0.3 per cent of global foreign exchange turnover in 2011 despite having a significant portion of foreign direct investment.
So there is an imbalance. Deutsche Bank expects 30 per cent of China's trade to be conducted in yuan by 2015. It also expects yuan bond market capitalisation to account for more than half of the Hong Kong debt market by 2015.
"What you have is a high quality, diversified, decently yielding credit market," says Geoffrey Lunt, senior product specialist in Asian fixed income at HSBC Global Asset Management in Hong Kong. Lunt says this is an interesting option for investors as there is a misperception that it is a low-yield market.