A move unveiled on Tuesday by Singapore and China to allow direct trading of their currencies cements the Republic's status as a yuan trading hub, experts said.
The step, along with other measures to free up two-way financial trading, also gives investors here more ways to profit from China's growth story, they added.
The most exciting move for investors here is China's decision to include Singapore in a programme allowing financial institutions here to buy directly into the mainland securities market, up to a quota of 50 billion yuan (S$10.2 billion). This Renminbi Qualified Foreign Institutional Investor programme will also allow these financial institutions to then issue yuan-denominated investment products to investors here.
Banks and asset managers could, for example, help their clients channel yuan deposits in Singapore into China-listed stocks and bonds to get higher returns, while fund managers could package China-listed securities into unit trusts for retail investment.
Nikko Asset Management Asia's head of fixed income, Mr Koh Liang Choon, said this is a timely move, given that offshore yuan deposits here have grown rapidly to over 140 billion yuan by the end of July this year, up 40 per cent from December last year.
Standard Chartered chief executive Ray Ferguson said: "We see a real opportunity for our clients to benefit from yuan appreciation as investors look for new investment opportunities and companies look to diversify sources of funding."
A second move announced on Tuesday will potentially allow Chinese investors to play in Singapore's capital markets. China will consider Singapore as one of the investment destinations under a new Renminbi Qualified Domestic Institutional Investor scheme.
"Capitalising on its position as a leading offshore hub for international and private banking, asset managers in Singapore will be able to advise customers in China on their investment strategy for onshore products here in Singapore," said HSBC Singapore chief executive Guy Harvey-Samuel.
Lion Global Investors chief executive Gerard Lee added: "Mainland Chinese investors view Singapore as a safe haven for their investments, similar to how Europeans view Switzerland during the European crisis of the last few years. Singapore equities will provide a good destination for safety and upside potential."
The introduction of direct currency trading will lower currency conversion costs between the Singdollar and yuan, bankers said, further propelling the growth of bilateral trade and investments.
It will especially benefit Singapore firms, said Ms Lum Yin Fong, head of global product management at DBS Bank's global transaction services unit. "With the establishment of a direct yuan trading link, a Singdollar-yuan benchmark reference rate will be made available by the People's Bank of China on a daily basis. This will benefit Singapore corporate customers hedging their yuan, as it will provide them with an official benchmark to refer to."
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