Global sales of structured products tied to the offshore yuan may reach $1 billion for the first time this year, spurred by China’s economic acceleration, according to HSBC Holdings Plc.
In Asia alone, sales of yuan-linked notes to investors and similar deposits have amounted to “a few hundred million dollars” this year, with estimated monthly worldwide volume at least doubling from 2012, Selene Chong, the bank’s global head of foreign-exchange and precious-metal structuring in Hong Kong, said in a phone interview. The pace will probably be sustained at least for the next two to three months, she said.
China’s economic growth accelerated last quarter for the first time since 2010, fueling speculation that the government would allow the currency to rise at a faster pace. Demand for the yuan is also getting a boost from the country’s effort to increase its use in global finance.
“The increasing popularity of the structured products will be coupled with an overall increase of interest in renminbi investments,” Chong said in a telephone interview from Hong Kong on Feb. 21. “As people are becoming more familiar with renminbi and increasingly using it as a trade currency, this will create more investment needs.”
HSBC and Barclays Plc have led sales of notes tied to the offshore yuan this year, accounting for the most of the at least 27 offerings compiled by Bloomberg. That’s more than any other full year before, the data show.
Among popular products are principal-protected notes that pay “high single-digit” coupons as long as the currency stays at current levels or “slightly” appreciates, Chong said. The offshore yuan has been little changed this year, after gaining 1.9 percent in 2012, according to Bloomberg data.
The securities are also drawing interest from companies in Asia, as the currency is increasingly used for trade, Chong said.
About 30 percent of China’s overseas trades will probably be settled in the yuan by 2015, compared with about 10 percent currently, said Candy Ho, HSBC’s head of renminbi business development for Asia.
Offshore trading for the Chinese currency started in Hong Kong in 2010, where the average volume of yuan deals has doubled in the past year to the equivalent of at least $6 billion a day, according to Standard Chartered Plc. Transactions in offshore options in yuan swelled to between $300 million and $500 million per day, JPMorgan Private Bank estimates show.
That’s boosting demand for products linked to other yuan-denominated assets, in addition to the currency, Ho said. HSBC, the top underwriter for Dim Sum bonds this year, has also studied creating notes tied to the renminbi-denominated debt sold outside China, she said.
“At the end of the day, you’ll need to use market liquidity to hedge some of the risk,” Ho said. “We expect to continue to see investors looking for opportunities branching out into structured products.”