The recent slowdown in Taiwan’s yuan deposits may prove a short-term phenomenon, as the Chinese currency may soon stage a rebound, aided by improving economic fundamentals and strong demand from offshore markets worldwide, market watchers said yesterday.
Overall yuan deposits amounted to 292.74 billion yuan (US$47.13 billion) last month, increasing by 0.92 percent from May, while the offshore banking units (OBU) of local lenders posted a 7.46 percent decline in the month, central bank data showed on Tuesday, as companies trimmed positions in response to growing market volatility.
The figures was below market forecasts that deposits would rise above the 300 billion yuan mark given the fast gain prior to the yuan correction in March.
Yuan deposits at OBUs stood at 52.65 billion last month, compared with 56.896 billion in May, central bank said. It is the second consecutive month of decline in yuan deposits at OBUs whose services are restricted to corporate customers.
“The yuan may stage a comeback this month or in August, as the latest wave of corrections is about to end, in line with the average duration of four months,” Fubon Asset Management Co (富邦投信) fund manager Amanda Huang (黃詩紋) said.
That China’s GDP grew 7.5 percent in the second quarter would help ease uncertainty about the country’s economic outlook, Huang said.
Yuan deposits at domestic banking units equaled 240.09 billion yuan last month, rising a mild 2.9 percent from one month earlier, the central bank’s data showed.
Taiwanese investors likely channeled funds to overweight dim sum bonds and Formosa bonds, yuan-denominated debts issued in Hong Kong and Taiwan respectively, because they pay higher yields, Huang said, adding that the adjustments affirm a long-term positive outlook on the Chinese currency.
The trend dealt a blow to Taiwan’s effort to develop into an offshore yuan hub in the region after Hong Kong, Securities Investment Trust and Consulting Association (證券投信投顧公會) chairman Henry Lin (林弘立) said.
The situation will deteriorate if the deadlock over the cross-strait service trade pact lingers, denying Taiwan the access to 100 billion yuan quota under the Renminbi Qualified Foreign Institutional Investor program, Lin said.
The quota would help digest yuan deposits in Taiwan with a huge amount residing with the Bank of China’s (中國銀行) Taipei branch to gain interest income, Lin said.
“Financial institutions will explore alternative channels if the legislature simply strikes down the trade pact,” Lin said, painting uncertainty as the worst-case scenario.
Standard Chartered Bank Taiwan shared the view that yuan deposits would regain popularity among local investors.
“We expect yuan to resume appreciation path in the second half, as the volatility has abated and latest economic data lend support to China’s growth,” the bank’s Taipei-based economist Tony Phoo (符銘財) said in a note.
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