| HONG KONG
HONG KONG May 28 Banks in Hong Kong have
started to provide yuan structured deposit products to investors
who are betting the Chinese currency will depreciate in coming
months, amid weak sentiment over the outlook for China's economy
The products come at a time when the yuan experienced its
most sustained depreciation ever at the beginning of this year,
after China's central bank engineered a sharp fall to shake out
hot money speculating on non-stop yuan appreciation.
Bank of China Hong Kong, the yuan clearing bank in
the former British colony, launched a yuan structured product
last week that will give investors an annual return of 5 percent
if the yuan falls about 1.7 percent in nine months.
The target level to obtain the maximum potential interest
rate is for the yuan to reach the USD/CNH spot rate on May 30
plus 0.1080, a spokesperson at the bank told Reuters late on
Hang Seng Bank has also offered a product called
"currency-linked capital protected investment deposit", which
shows that if investors deposited yuan on May 27, they will
enjoy an annual return of 5 percent if the yuan falls to 6.4180
by Feb. 12, 2015.
However, if the yuan does not reach the trigger level,
investors will only obtain an annual return of 0.1 percent, much
lower than those of vanilla yuan deposits which carry interest
rates of more than 3 percent in the market.
"There were structured deposits to short currencies before,
but not for the yuan, as it had shown one-way appreciation until
the end of last year," said Daniel Chan, wealth management
director at Brilliant & Bright Investment Consultancy Limited.
"For these yuan bearish products, we saw some interest among
our clients who want to diversify their investment portfolios
and manage currency risks," Chan said.
The yuan has fallen 3.2 percent so far this year,
wiping out all its gains in 2013 and becoming one of the worst
performers among its emerging market peers.
Bearish sentiment on the yuan has risen slightly on concerns
that economic growth may be cooling more rapidly than expected.
Investors have been taking bearish bets against the currency
since mid-March, according to a Reuters bi-weekly survey.
In the offshore non-deliverable yuan market where global
investors bet on future yuan direction, nine-month contracts
traded at 6.2430, implying the currency may depreciate 1.2
percent in nine months' time.
China's annual economic growth slowed to an 18-month low of
7.4 percent in the first quarter, raising the risk that the
world's second-largest economy could miss its growth target of
7.5 percent this year, for the first time in 15 years.
Market participants say that in addition to the products
offered by Bank of China Hong Kong and Hang Seng Bank to retail
investors, some other banks are also providing similar products
to their private bank clients.
Competition for yuan deposits in Hong Kong has intensified
in the past few months as banks increased interest rates to
attract new yuan funds that can be used for investments in
broader channels and markets.
Yuan deposits in the world's largest offshore yuan centre
amounted to 945 billion yuan at the end of March, accounting for
more than 10 percent of Hong Kong's total deposits. The Hong
Kong Monetary Authority will release the April data on Friday.
(Editing by Chris Gallagher)