Fri, May 30, 2014 - Page 14 News List

Yuan investments growing popular

By Crystal Hsu  /  Staff reporter

Taiwanese investors expressed more concern over rising yuan volatility than China’s slowing GDP growth, but many still plan to increase their exposure to the currency on appreciation expectations, Standard Chartered Bank said in a report.

About 40 percent of Taiwanese clients see rising yuan volatility as their biggest concern for China’s outlook, over slowing GDP growth, reflecting their keen pace to adopt the yuan for trade settlements and the fast growth in the offshore yuan market, the British banking group said.

Taiwan’s yuan deposits rose to 268.4 billion yuan (US$43 billion) as of March, up almost sevenfold since the government allowed domestic banking units to conduct yuan business in February last year.

The yuan is the weakest Asian currency this year, having dropped more than 3 percent against the US dollar, Standard Chartered said, adding it expects greater volatility in spot onshore trading and lower volatility in China’s daily fixing.

However, 90 percent of investors are looking to increase their allocations of yuan investments in the next three months, citing the recent volatility and weakness as an opportunity to build up positions, the bank’s report said, adding that only 10 percent intend to trim their holdings.

The findings suggest strong confidence in China’s foreign-exchange policy outlook among Taiwanese clients, which will continue to boost yuan deposits, the report said.

Taiwan’s yuan clearing bank — the Bank of China’s Taipei branch — is supporting the trend by offering the highest interest rates of all offshore clearing banks, Standard Chartered said.

More than 50 percent of yuan deposits are with the clearing bank, as such deposits offer higher yields than most dim sum bonds and Formosa bonds.

“This may help explain why the Formosa bond market has lagged behind Hong Kong’s dim sum bond market,” the report said.

The dim sum bond market has seen a record issuance of 304 billion yuan of bonds this year, compared to the 1.5 billion Formosa bonds issued, the report said.

Outstanding Formosa bonds totals 12.1 billion yuan, accounting for 1.7 percent of outstanding dim sum bonds at 730 billion yuan, the report said.

Demand for Formosa bonds from Taiwanese life insurers is likely to increase going forward now that they can exclude Formosa bonds from their overseas investments, presently capped at 45 percent of their overall portfolio, the report forecast.

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