Chinese Yuan investment

Chinese Yuan (CNY) was in newspaper headlines in past few days. Singapore is fast becoming an important hub for offshore Chinese Yuan (CNH) after Hong Kong. Yuan deposits in Singapore grew 70% to about 200 billion yuan (approx. S$40 b) in last nine months in 2013. (Today, 14 March 2014). CNY is now one of the world’s 10-most-used currencies for payment. (Source: SWIFT)

Two years back in March 2012, I invested in CNH deposit with a local bank. This fixed deposit yielded interest of 2.5% per year. The currency exchange rate then was 1 CNY = S$0.2024. This is my initial cost of the investment.

A year later on maturity (in March 2013), this amount was placed in a one-year structured deposit that is FX-linked with the same local bank. This structured deposit will only pay interest of 5.25% p.a. only on one condition (or no interest at all). This condition is when the exchange rate between USDCNH is less than 6.1511 at the final fixing date (also the maturity date). Thankfully, this condition was fulfilled (though during the week leading to maturity date, there was likelihood that it might not). I got the 5.25% interest credited with the full amount of CNH investment returned.

Over the two years, this particular investment yielded about 8% in total return (based on the latest CNYSGD rate).

I decided to hold on to this Chinese Yuan investment and placed it into one-year time deposit with interest rate of 1.75% p.a. My belief is that, CNY investment could become widespread in years to come and is an alternative means of investing money. The risk is that the currency fluctuation can turn against you from your initial cost of investment just like all currency-related investments.

Note: offshore CNY = CNH.

Copyright © 2014, limkimtong for Living Investment

The material presented is intended to be general and written in layman’s language as much as it is possible. The author shall not be liable for any direct or consequential loss arising from any use of material written. Please seek professional advice from your financial advisor or financial institutions on material written covering financial matters.

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