Mainland investors hungry for assets denominated in U.S. currency

Updated 2016-12-22 10:07:29 Global Times

Dollar hunting

As the yuan's depreciation trend has intensified in 2016, many domestic investors have started to put money into U.S. dollar-denominated assets, such as insurance, stocks and real estate. Much of the investment has been legitimate, but some has violated laws governing overseas investment. Recently, the central government vowed to keep the U.S. dollar-yuan exchange rate at a "reasonable level," so it has grown stricter about controlling capital outflows. At the same time, it is seeking to lowering expectations for further yuan depreciation.

A Beijing resident surnamed Xie has bought about 0,000 worth of U.S. currency since the middle of 2016.

When he started buying the greenback, each U.S. dollar cost him about 6.58 yuan. "I judged that the yuan would depreciate further, so I decided to exchange some yuan for U.S. dollars," said Xie, who works at a securities firm and didn't want to disclose his full name.

Xie left the money in the bank for future use, maybe for his children if they end up studying abroad, Xie said.

Many individuals and companies in China have been buying U.S. dollars with the expectation that the yuan will depreciate further, which has resulted in a hastening decline in China's foreign exchange reserves.

China's foreign exchange reserves stood at .05 trillion at the end of November, down billion from the end of October, according to the People's Bank of China (PBC), the country's central bank. It was the fifth straight month that the reserves had fallen.

On Wednesday, the PBC set the yuan's central parity rate against the U.S. dollar at 6.9489, which was down nearly 7 percent from the rate set on January 4, according to central bank data. The yuan has been depreciating against the dollar since mid-August 2015, when the government revamped the yuan's central parity rate mechanism.

Xie has made money on the currency exchange, though he doesn't expect big returns. "Nowadays, the yield on most domestic financial products is low. Considering how much the yuan has depreciated against the U.S. dollar, the yield on U.S. dollar exchange is almost the same as financial products in China," Xie told the Global Times on Monday.

However, Xie sees only limited room for the yuan to depreciate further. That's why he has stopped buying the greenback, at least for the time being.

"I will see in January," he said.

The U.S. Federal Reserve announced on December 14 that it would increase its benchmark interest rate by one-quarter of a percentage point, taking the Fed's target rate to 0.5-0.75 percent.

Desiring the dollar

Chinese mainland residents have several ways to invest in dollars besides deposit, including overseas insurance, U.S. stocks, U.S. real estate, dollar-denominated financial products and the Qualified Domestic Institutional Investor (QDII) fund, said Liu Jian, a senior research fellow at the Bank of Communications.

"Mainland investors' allocation of U.S. dollar assets has always existed, but as depreciation expectations weigh on the market, those moves have intensified a great deal," Liu told the Global Times on Monday.

A white-collar worker in Beijing surnamed Zuo, who didn't disclose her full name, bought a dollar-denominated insurance policy in Hong Kong in 2015.

"I bought the insurance not because of the latest round of yuan depreciation, but because I needed some U.S. dollar assets to balance my portfolio. But now that the yuan has been depreciating against the U.S. dollar and this trend is very likely to continue, I am considering buying more," Zuo told the Global Times on Monday.

The insurance broker who sold Zuo the policy said that her company's insurance has grown even more popular with mainland investors recently.

"Nowadays, if you want to buy my company's insurance products, you will have to make an appointment about 10 days in advance. There are too many customers," she told the Global Times on Monday on the condition of anonymity.

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