Gain exposure to China’s currency with offshore Renminbi (CNH)
Recently I encountered a structured deposit marketed by a local bank. The product gives investors exposure to the Chinese Yuan (CNY) or renminbi through its offshore version CNH. The offshore Renminbi was created by the Hong Kong Monetary Authority and the People’s Bank of China.
Upsides for the deal
- 1-year placement
- Potential to gain up to 7.8% return (on condition that CNH appreciates against USD by 1% by due date)
- In the event that condition is not met, I could continue to hold the CNH in a fixed deposit account without being compelled to change it back to Singapore Dollar or to USD
- Principal guaranteed by the bank
- The main downsides are potential losses from changing Singapore Dollar SGD to CNH and back again.
- A structured deposit is a type of investment product (not true deposit) so is not insured by SDIC.
- There is counterparty risk i.e. if the bank guaranteeing the principal becomes insolvent.
Renminbi long term trend
Until 20 July 2005, the Renminbi was pegged to the US Dollar (USDCNY) at an exchange rate of 8.2765. From 21 July 2005, it started exchanging for 8.11 and has been appreciating since (CNY appreciate against USD so the chart of USDCNY is falling). On 07 May 2013, it traded between 6.1516 – 6.1662.
Different ways to invest or trade
For investors keen to look at long term investment in Renminbi, different ways to get exposure are now possible:
- CNH allows investors outside China to invest in the RMB; in Singapore we can do so with structured deposits
- Fixed deposits in CNH may also be possible soon.
- Note that there are small divergences in rate between CNY and CNH from time to time. In the long run however they are correlated.
Traders might be interesteed to note that USDCNH spot and futures are already available for trading with some brokers.
Director, TerraSeeds Market Technician Pte Ltd. Trader, investor. @sohtionghum was picked ‘Top 70 Forex Twitter in 2015’. Operates multiple strategies.
“Dear reader, I do not have a financial license to give advice. I do not know you the reader. Your financial objective and risk tolerance may be different from mine. I am not responsible for any consequence of your action.