Risk reminder on investing in RMB products

Mainland investments
Currency rate

The value of renminbi (RMB) has recently experienced a decline after the Mainland’s central bank widened the daily trading band. According to our research Knowledge, Attitudes and Behaviour towards Money and Debt Management, 55% of Hong Kong people have some misunderstanding that investing in RMB guarantees value appreciation. Like any currency, the exchange rate of RMB may rise or fall; further, RMB is subject to conversion restrictions and foreign exchange control mechanism. Therefore, when investing in RMB products, you should be aware of the possible risks as a result.

  • Currency risks: In general, a non-Mainland (including Hong Kong) investor who holds a local currency other than RMB will be exposed to currency risk if he/she invests in a RMB product due to the need for the conversion of the local currency into RMB. If you invest in RMB product and when you redeem or sell your investment, you may also need to convert the RMB received upon redemption / sale of your investment product into the local currency (even if redemptions / sale proceeds are paid in RMB). During these processes, you will also incur currency conversion costs. Even if the price of the RMB product remains the same when you purchase it and when you redeem / sell it, you will still incur a loss when you convert the redemption / sale proceeds into local currency if RMB has depreciated. Also, the underlying investments of RMB products may include non-RMB assets. In that case, the products will be subject to additional currency risk due to the exchange rate fluctuations between the RMB and the currency(ies) exposure of the non-RMB assets.

Depending on the nature of the RMB product and its investment objective, there may be other risk factors specific to the product which you should consider:

  • Investment / market risk: Like any investments, RMB products are subject to investment risk and may not be principal protected (ie the assets that the products invest in or referenced to may fall as well as rise, resulting in gains or losses to the product). This means that you may suffer a loss even if RMB appreciates due to the additional risks arising from the underlying investments/assets of a product (eg market risk). You should also note that RMB products may not necessarily give you benefits to appreciation and that you may not receive RMB upon redemption / sale of the RMB products.
  • Liquidity risk: Not all intermediaries are prepared to carry out trading and settlement of listed RMB products. The liquidity and trading price of listed RMB products may be adversely affected by the limited availability of RMB outside mainland China and the restrictions on the conversion of foreign currency into RMB.
  • Issuer / counterparty risk: RMB products are subject to the credit and insolvency risks of their issuers. You should consider carefully the creditworthiness of the issuers before investing. Furthermore, as some RMB products may invest in derivative instruments, counterparty risk may also arise as the default by the derivative issuers may adversely affect the performance of the RMB products and result in substantial losses.

Like investing in any product, you should always understand the nature, investment objective, strategy, key features and risks of the RMB products and assess whether these products are suitable for you in terms of your own investment needs and risk profile before you invest. Should you have any questions about the product, please consult your intermediaries before making any investment.