Yuan Money-Market Funds Sprout in Taiwan as China Bourse Opens

May 22, 2014 3:37 am ET

May 22 (Bloomberg) -- At least five yuan-denominated money- market funds are setting up this year in Taiwan on speculation a planned link between the Hong Kong and Shanghai stock exchanges will fuel demand for the currency, an industry group said.

Fubon Asset Management Co. and Capital Investment Trust Corp. have applied to the local regulator to set up such funds, according to Henry Lin, chairman of Taiwan’s Securities Investment Trust & Consulting Association. Similar funds were set up since February by Mega International Investment Trust Co. and Taishin Securities Investment Trust Co., while Yuanta Securities Investment Trust Co. said this week it will start one in June. Taiwan had two such funds last year, managing a total of NT$6.4 billion ($212 million), SITCA data show.

“As yuan investment opportunities increase and trading becomes more active, investors will need channels to park their funds,” Taipei-based Lin said in a May 20 phone interview. “Money-market funds may not return as much as bond funds, but the liquidity is better and volatility is lower.”

Taiwan’s investors are looking beyond local yuan assets to boost returns on their deposits of the currency, which surged fivefold to 288 billion yuan ($46 billion) in the last 12 months. They will be able to buy individual Chinese stocks once the Hong Kong and Shanghai stock exchanges link up, Lin said. About half of the island’s yuan savings are now re-deposited in the interbank market, while only 7 percent is used for loans, according to estimates by Credit Suisse Group AG.

Shanghai Stocks

China announced last month a plan to connect the Hong Kong and Shanghai bourses that would allow individuals on the mainland to buy up to 250 billion yuan of Hong Kong-listed shares and offshore investors to pump 300 billion yuan into Shanghai equities. Taiwan’s bourse plans to introduce its first yuan exchange-traded fund this year, while 12.1 billion yuan of bonds have been sold on the island since the local Formosa market opened in the first quarter of 2013.

The onshore yuan has weakened 2.9 percent this year versus the U.S. dollar, Asia’s biggest loss, as Chinese economic growth slowed and policy makers guided the currency lower to curb speculation it was a one-way appreciation bet. It is forecast to strengthen 2.2 percent in the remainder of this year, according to the median estimate in a Bloomberg survey of analysts. The yuan strengthened 0.08 percent to 6.2337 per dollar yesterday in Shanghai.

This year’s depreciation presents a good opportunity to buy yuan money-market funds as the currency is still expected to appreciate in the long term, Lin said. The two funds established last year -- one by Fuh Hwa Investment Trust Co. and another by Cathay Securities Investment Trust -- both returned 0.62 percent in the three months through April 28, according to data on the funds’ websites.