Retail investors in Hong Kong are showing less appetite for dim sum bonds this year, as expectations of rapid gains in the value of the currency diminish.
Subscriptions for yuan-denominated debt, also known as dim sum bonds, exceeded 17.48 billion yuan (HK$21.23 billion) during an offer period from June 29 to yesterday, according to the Ministry of Finance. The amount represents about 3.18 times of the retail issue, set at 5.5 billion yuan. The issue date is July 19.
The figures are lower than those from last year, when retail investors applied for 20.18 billion yuan worth of bonds, which exceeded the 5 billion yuan of bonds on offer by 4.04 times.
'I don't find it very attractive,' said small investor Oscar Man. 'I don't think there is a huge difference between subscribing for the bonds and making a fixed deposit in yuan. The latter even gives give me more flexibility.'
He said iBonds, the inflation-linked product issued by the Hong Kong government, were more attractive. He was allocated HK$40,000 worth of iBonds last month and expects them to pay an annual interest rate of about 5 per cent.
The dim sum bonds have a two-year tenor with an annual interest rate of 2.38 per cent, comfortably higher than deposit interest rates. This year's retail interest rate is much higher than last year's coupon rate of 1.6 per cent.
Nathan Chow, an economist at DBS Bank, told the South China Morning Post earlier that people were less excited about the product because 'they are less confident that the yuan will continue to appreciate strongly'. Standard Chartered economists said last month the yuan was likely to depreciate against the US dollar this year, because of weakening economic growth at home and slumping exports.
China Construction Bank (Asia) said yesterday it had received an 'ideal response' from its clients, with each subscribing for 100,000 yuan worth of sovereign bonds on average.
Citibank said the number of applications it received from retail investors rose by 10 per cent compared with last year, while Bank of Communications said the value of the subscriptions it received surged about 20 per cent this year.
Retail investor Teddy Chan, 69, submitted requests for HK$50,000 sovereign bonds yesterday. He said it was a stable and low-risk investment for him.
'I subscribe because the interest rate is better than that for fixed deposits of Hong Kong dollars, and I think the yuan will appreciate in the long run. Since it is issued by the Ministry of Finance, and China is a strong nation, I think it is a safe investment for me,' the retiree said.
On June 28, 15.5 billion yuan worth of bonds were issued to institutional investors, having attracted subscriptions of about 58.6 billion yuan, more than three times the issue size.
A further two billion yuan of bonds was earmarked for central banks, as China tries to internationalise the yuan with a view to making it a reserve currency.
Amount, in yuan, of dim sum bonds issued in Hong Kong this year by the Ministry of Finance, of which 5.5 billion yuan is for retail investors