Hong Kong’s appetite for yuan bonds is on the rise, survey finds

According to Standard Chartered, bonds are now the most popular investment choice among assets denominated in the Chinese currency

PUBLISHED : Wednesday, 02 November, 2016, 5:26pm
UPDATED : Wednesday, 02 November, 2016, 10:10pm

Hong Kong investors’ appetite for yuan-denominated bonds has increased despite the volatility of the currency in the past year, according to a survey by Standard Chartered.

Bonds have become the most popular asset class among investment products denominated in the Chinese currency, now accounting for 11 per cent of the total, the bank said on Wednesday.

However, yuan-denominated assets as a proportion of total assets held by Hongkongers have dropped by 2 per cent from a year earlier. In particular, the amount held as time deposits - bank deposits that can’t be withdrawn before a set date or for which notice of withdrawal is required - has fallen, the survey found.

The bank’s survey was conducted between September 23 and October 3, coinciding with the yuan’s introduction to the International Monetary Fund’s Special Drawing Rights (SDR) basket of global reserve currencies.

We share the same cautious optimism as our survey respondents towards the RMB’s outlook
Kelvin Lau, senior economist, Standard Chartered

“In particular, for RMB bonds, investors may want to focus on government bonds or high quality corporate bonds,” said Will Leung, head of investment strategy, wealth management, Standard Chartered Hong Kong. “The upcoming Shenzhen-Hong Kong Stock Connect is certainly another area to pay attention to.”

The survey showed that, in particular, there was an increasing appetite for yuan-denominated bonds among investors aged 18 to 34, who tend to see the products as their first step in renminbi (RMB) investment.

While RMB bonds were the favoured investment product, bank deposits are still the dominant yuan-denominated asset class overall, with 43 per cent of survey respondents saying they own an RMB savings account.

More than 60 per cent of respondents said they would be interested in buying RMB investment products through channels such as the Hong Kong-China mutual fund recognition scheme, offshore yuan bonds or the Shenzhen-Hong Kong Stock Connect which is due to launch soon.

The survey also shows that respondents who currently hold yuan deposits or investment products expect to increase their investment by an average of 12 per cent over the next year, suggesting investors are capitalising on the currency’s decline over the past year.

That could be attributed to investors’ confidence in the currency, as more than half of the respondents thought that the yuan would eventually recover its losses.

“We share the same cautious optimism as our survey respondents towards the RMB’s outlook,” said Kelvin Lau, senior economist, Standard Chartered Hong Kong.

Despite the recent sharp depreciation of the yuan,“its basket value has actually remained within a relatively narrow range since early July 2016,” he said. “We believe this is a sign of China not planning to pursue a new depreciation trend.

“Fundamental arguments do not justify a broader-based depreciation, as the authorities remain focused on containing macroeconomic risks and stemming capital outflows in near term.”

The survey results come as offshore yuan deposits in Hong Kong posted an increase in September after falling for three consecutive months.

Offshore renminbi deposits in the city rose by 1.9 per cent to 665.5 billion yuan in September from a month earlier, according to statistics released by the Hong Kong Monetary Authority on Monday.

“It shows that the market’s confidence in the yuan is recovering after its inclusion into the IMF’s SDR baskets last month,” said Ying Jian, senior economist at Bank of China (Hong Kong).