In recent months, the renminbi (RMB) exchange rate, along with stock market volatility, has become a key concern for retail investors in Asian markets.
In the past, investors used to focus on the room for RMB appreciation. These days, it’s the reverse that everyone is occupied by.
Standard Chartered’s survey on the RMB investment appetite among 500 retail investors – conducted in mid-August just as markets were braving the devaluation wave – showed that over 60 per cent of the respondents expected to see further decline of the RMB in the coming year.
But even then – at the height of the action – half of the respondents expected the possible future weakness to be less than 5 per cent.
"Among our survey respondents, only a quarter intended to reduce their holding"
Investors expecting a drop in the value of the RMB could normally be expected to sell off their RMB investments, but, among our survey respondents, only a quarter intended to reduce their holding.
The survey results suggest that investor confidence in the long-term prospects for the RMB is unshaken, and that as long as the movement in the RMB is within a certain range of expectation, investors are still willing to hold onto it.
Though the RMB has fallen by close to 3 per cent this year, compared with the movement in currencies of other Asian or emerging markets, or even the world’s major currencies, the movement of RMB is relatively small and may be the motivation for certain investors who elect to stay put and hold on to the Chinese currency.
However, following the devaluation in August, it is possible that RMB will be subject to two-way volatility in the future, and, under this new trend, it may be time for investors to consider adjusting their strategy.
"Those who intend to hold onto the RMB may want to consider investing their capital through other products, such as stocks, bonds and funds"
Buying RMB and holding it in time deposit used to be the most popular strategy for RMB investment, bringing investors a higher interest rate as well as currency appreciation opportunities.
Going forward, those who intend to hold onto the RMB may want to consider investing their capital through other products, such as stocks, bonds and funds. Whilst these types of products have a different risk profile from time deposits, they have the advantage of presenting investors with different choices to suit their needs, catering to a wide range of time frames and risk appetites.