China's currency moves

Experts upbeat on long-term prospects of yuan products

The evolution of the yuan as an international currency is likely to enhance the status of Singapore as a yuan hub, according to EFG Bank's Mr Kong Eng Huat.
The evolution of the yuan as an international currency is likely to enhance the status of Singapore as a yuan hub, according to EFG Bank's Mr Kong Eng Huat.PHOTO: REUTERS

Wealthy clients are still buying them as they expect China to grow faster than other markets

The Chinese devaluation may look a game changer but experts believe yuan investments have good long- term prospects while Singapore's development as a clearing hub for the currency will not be badly hurt.

Mr Kong Eng Huat, EFG Bank's chief executive of Singapore and South-east Asia, told The Straits Times: "I think high-net-worth clients will pause in terms of allocating more funds into China but they are unlikely to pull out of the market completely.

"Investors cannot ignore that China is the second-largest economy in the world. It is undergoing structural reforms and building a sounder base for investments."

The first devaluation on Tuesday was seen as a move to boost exports, but the People's Bank of China has downplayed it as a one-off correction.

However, the central bank devalued the yuan again on Wednesday and yesterday, further cutting its value against the US dollar.

Mr Hans Goetti, the head of investments for Asia at Banque Internationale a Luxembourg, said the devaluation could cause some delays in the launch of yuan-denominated investment products for the retail market - something that investors have been anticipating since Singapore was named a yuan clearing hub in 2011.

After all, investors may now find such products less attractive, given China's softening economic outlook. Furthermore, any capital gains made from a yuan investment will be eroded by currency conversion if the yuan continues to weaken, which many forecasters expect.

Of investors' reactions, Ms Chung Shaw Bee, UOB's head of regional and Singapore wealth management, said: "We don't expect the devaluation to have significant impact on our yuan deposits."

Retail investors have always viewed yuan deposits as a positive long-term investment, given China's ongoing internationalisation of its currency, she added.

"The yuan continues to be a good option for customers looking to diversify their portfolio. Besides fixed deposits, customers can place their money in other yuan-denominated investment products such as bonds, funds and structured solutions," she said.

Mr Clifford Lau, head of fixed income for the Asia-Pacific at Columbia Threadneedle Investments, said investors should interpret the news as a stark reminder that no market trades one way.

"On a positive note, the devaluation has provided a better reflection of the current economic state and is evidence of the government's commitment to reforms," he added.

He noted that having a more flexible exchange rate system may improve the prospect of the yuan's inclusion in the International Monetary Fund's (IMF) Special Drawing Rights basket, "which could help arrest the decline at some point in the future if the economy was to stabilise as well".

Mr Kong noted that wealthy clients are still buying yuan-denominated investment products as they expect China to grow faster than other developing markets.

It would be challenging for short-term investors, but not for longer-term ones, he said.

"The evolution of the yuan as an international currency will strengthen the activity and volume of yuan currency and products, thus enhancing Singapore's status as a yuan hub," he added.

Mr Goetti agreed, saying that demand for yuan investments will continue to rise as the yuan gets closer to gaining reserve-currency status.

A version of this article appeared in the print edition of The Straits Times on August 14, 2015, with the headline 'China's currency moves Experts upbeat on long-term prospects of yuan products'. Print Edition | Subscribe