GuShiio.com ① Since Hong Kong is currently implementing a “pegged exchange rate system”, which is fixed tied to the US dollar index, the domestic US dollar deposit interest rate will be lowered but Hong Kong will not be affected.
② For economic cycles where market interest rates are in a downward environment for a long time, the space for capital gains is limited, and asset allocation focuses more on the long term.
Cailian News, February 12 (Editor Li Xiang)Against the background of declining asset yields in the mainland and the intensifying “asset shortage” phenomenon, it has become a general trend for mainland investors to seek higher returns and more diversified investment options overseas.
With the recent “high dive” of some domestic US dollar deposit interest rates, the overall income of US dollar wealth management products has also seen a correction. Hong Kong, with its institutional advantages such as “pegged exchange rate system”, is gradually demonstrating its unique position in the global asset allocation landscape. Whether it is US dollar deposits with yields exceeding 4% in the short to medium term, or insurance products with long-term expected yields of more than 5%, Hong Kong may become an important highland for mainland investors to allocate overseas assets.
However, when mainland investors make cross-border asset allocation, they need to pay attention to potential exchange risks and the rationality of capital allocation, and try to diversify investment risks through diversified allocation.
US dollar deposit interest rates “plunged high”, highlighting the attractiveness of Hong Kong’s high-interest US dollar deposits
Recently, some domestic banks have accelerated their efforts to cut US dollar deposit interest rates. According to an incomplete review by the Financial Union, the interest rate of Bank of Beijing’s Beijing-Huizun US dollar deposit products has recently changed. The one-year interest rate of the previous US dollar deposit products was 3.3%, and the six-month interest rate was 3.0%. Now there is no limit; Among the newly issued products on sale on February 8, the one-year interest rate was 3.0%, and the six-month interest rate was 2.7%.
Bank of Nanjing lowered the interest rate on US$3M deposits from 4.3% to 2.1%. Some US dollar fixed deposit products of Bank of Jiangsu have been removed from shelves. Some banks have also raised the threshold for US dollar time deposits.
As the US dollar deposit interest rates of some domestic banks quietly lowered, the overall income of US dollar wealth management products also showed a correction.
Data from Puyi Standards shows that as of February 9, the average annualized rate of return on domestic US dollar wealth management products in recent January has reached around 4.4%, which has dropped by 10bp from 4.5% at the beginning of the year. Among them, cash management US dollar wealth management products have the largest decline, from 4.1% on January 5 to 3.94% on February 9, with a downward trend of 16bp.
Although many market participants regard the reduction in US dollar deposit rates as an early response to the subsequent Federal Reserve interest rate cuts by some banks to reduce costs, adjust their debt structure, and subsequently respond to expectations of the Federal Reserve’s interest rate cuts, the spread between China and the United States has remained high for a long time under the expectation of domestic interest rate cuts and RRR reductions.
Wind data shows that taking the 10-year treasury bond as an example, as of February 11, the spread between the 10-year treasury bond between China and the United States reached 291.4bp. Following the historical high spread of 315.04bp set on January 13 this year, the spread between the United States and the United States has continued to be at a high level and fluctuated. With the Federal Reserve’s expectation of interest rate cuts, the medium and long-term spread between China and the United States has a tendency to expand further.
Chart: Trend of spread between China and the United States 10-year treasury bonds
“This is good for long-term investment in US dollar assets.” Some analysts pointed out that since Hong Kong is currently implementing a “pegged exchange rate system”, which is fixed tied to the US dollar index, the domestic US dollar deposit interest rate will be lowered, but Hong Kong will not be affected.
According to industry insiders in Hong Kong, most of the high-interest US dollar deposits in Hong Kong are short-term discounts, and the deposit period is basically one month, three months or six months. The 3M US dollar deposit interest rate is mostly in the range of 4%-4.5%. In contrast, the income of domestic products with the same term is mostly around 4%. For example, the 3M US dollar deposit rate of Evergrowing Bank was still as high as 4.7% in August last year, and has been lowered to 4.0%.
“Although the gap between long-term deposit interest rates and the mainland is not obvious, as the short-term US dollar reduction in the mainland increases and the threshold increases, it is expected to attract more funds to flow to Hong Kong,” a Hong Kong banker said.
Hong Kong’s high-yield asset allocation varieties are not just US dollar deposits.
Hong Kong’s traditional savings insurance pricing interest rate is relatively high, which is an important part of the global diversified investment strategy
In the view of some institutional people, for mainland investors who intend to allocate overseas assets this year, the risk of US dollar interest rates will always exist. Hong Kong banks are also afraid that long-term interest rates will “dig a hole” for them, so they only dare to offer short-term high interest rates. High-interest products with medium-term 1-2 years are mostly equipped with high-credit-grade assets such as Chinese-funded US dollar bonds, and most of those that can traverse the economic cycle in a longer term are Hong Kong insurance products.
Tang Zhenlong, an agent of Hong Kong Prudential Insurance Co., Ltd., told Financial Union that for an economic cycle where market interest rates are in a downward environment for a long time, the space for capital gains is limited, and asset allocation should focus more on the long-term. As a global financial center with free circulation of funds, insurance is an important part of investment among mainland residents investing in Hong Kong in recent years, especially Hong Kong savings insurance. The expected return of mainstream savings insurance in Hong Kong is basically above 5%. There are some long-term insurance policies, long-term compound interest may even reach 7%. With its globally diversified investment strategies, it has become an indispensable financial management tool today.
According to Tang Zhenlong, the allocation of insurance funds in Hong Kong is also mainly fixed-income investments, with bond assets accounting for about 70%. Among them, high-grade bonds such as U.S. Treasury bonds are the main ones. Compared with holding U.S. dollar policies, it can be regarded as direct holding of U.S. dollar assets. Going to Hong Kong to purchase insurance can also be indirectly regarded as investing in U.S. dollar assets; In addition, in the fierce competition in the industry, Hong Kong insurance products have evolved many advantages that similar domestic products do not have, such as policy splitting, multi-currency conversion, etc. Investors can increase their investment returns based on the trend of interest spreads between different currencies.
According to statistics from relevant research reports of Huatai’s fixed income team, historically, since 2015, the traditional savings insurance pricing interest rate has been 75-100bps higher than the 5-year deposit interest rate, and the characteristics of high yield and long term are obvious. “Savings life insurance products are retail financial products with both long-term and safety characteristics. They have the magic of compound interest rollover. Economic growth is the biggest driving force for the development of the insurance industry. As long as the economy continues to grow, the decline in interest rates will not affect the development of the insurance industry. Form obstacles,” Huatai Securities analyst Li Jian wrote in the research report.
At the same time, Central Bank Governor Pan Gongsheng said in his speech at the opening ceremony of the Asian Financial Forum on January 13 that he would significantly increase the asset allocation ratio of the country’s foreign exchange reserves in Hong Kong, which is also an opportunity for individual investors to allocate overseas assets.
It is worth noting that although the relative stability of US dollar assets has made Hong Kong savings insurance an excellent overseas asset allocation tool in the context of increasing global economic uncertainty, Li Jian, an analyst at Huatai Securities, pointed out that savings products as a means of protecting income have relatively prominent advantages in the early stage of interest rate decline. However, when interest rates drop to a certain level, their yields are too low, which may lead to weakened competitiveness and a decline in proportion. In the United States, Japan and France have similar development trends.
