HK investors continue to buy yuan-linked products

Hong Kong investors are eager to buy yuan assets to capitalize on the currency's expected appreciation against the US dollar, according to a survey published on Thursday by China Construction Bank (Asia).

The survey, which polled 805 people in Hong Kong with at least a HK$10,000 (US$1,288) monthly income, found that more than half of the respondents believed that yuan savings were an effective investment, and an essential part of a good investment portfolio.

Over 40 percent said they will buy yuan deposits over the next 12 months, while 58 percent of respondents agreed that "looking back on the past three years, I should have invested more in RMB".

The investor enthusiasm comes as many now expect a slowing of economic stimulus by the US Federal Reserve to hit emerging market currencies.

The worst-affected currency so far is the South African rand, which has dropped around 9 percent against the dollar over the past month.

The yuan, however, continues to buck the trend, setting new highs against the greenback.

It traded at around 6.14 to the dollar on Thursday, up more than 20 percent since China began its foreign exchange reform in 2005.

As the Hong Kong dollar is pegged to the US dollar, the yuan's appreciation also makes it strong against the Hong Kong dollar.

Around 80 percent of respondents said they believed the yuan's appreciation will continue over the next five years.

In the short term, a third said the currency would appreciate another 5 percent over the coming year.

Fong Chun Cheung, head of investment research and portfolio strategy at CCB Asia, expected the yuan to appreciate 1 to 3 percent annually against the US dollar for the next five years.

"In our view, the RMB still has room for appreciation against the US dollar in the long-term, although it will appreciate within a narrower margin," Fong said.

Financial institutions including CCB are eager to capitalize on the growing demand for yuan products in the world's largest offshore yuan market, Hong Kong, which had a total of 677.2 billion yuan in deposits at the end of April.

This month it launched a slew of yuan products, including a yuan payroll account service which automatically converts part of depositors' monthly salaries into the currency. The yuan structured deposits product offers depositors preferential interest rates.

Earlier this month, BlackRock Inc launched an exchange-traded fund that tracks the performance of offshore yuan-denominated bonds, a market now worth in excess of 400 billion yuan.