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INTERVIEW-Hong Kong market regulator says RMB hype ahead of reality

Published 04/14/2011, 03:45 AM
Updated 04/14/2011, 03:48 AM

HONG KONG, April 14 (Reuters) - The hype surrounding yuan-denominated investment products in Hong Kong is getting ahead of itself, the city's market regulator said on Thursday.

Banks in Hong Kong are flush with renminbi deposits as investors bet on the Chinese currency appreciating significantly in coming years. But with bank deposits yielding just 0.4 percent to 0.6 percent, investors are clamouring for new yuan-denominated products which can offer higher returns.

The first yuan-denominated real estate investment trust IPO, Hui Xian, is due to launch at the end of April and has already been fully covered by investors despite it offering a lower dividend yield than most Hong Kong listed trusts.

"I think the excitement of RMB products has probably got ahead of the reality," Martin Wheatley, chief executive of the Securities and Futures Commission, told Reuters in an interview in Hong Kong.

He added that while there is a lot of renminbi in Hong Kong's banking system, that doesn't necessarily mean the city has the capacity for a rush of new products.

"In truth there is a significant build-up of renminbi deposits but that doesn't necessarily translate into adequate liquidity to launch products into," he added.

The level of yuan denominated deposits held in Hong Kong now stands at the equivalent of $62.3 billion, more than four times higher than last June.

On the broader issue of financial reform, Wheatley, who is leaving the SFC this summer to take up a new post at the UK's Financial Services Authority, dismissed suggestions that differences in laws between countries is creating loopholes for so-called "regulatory arbitrage", where companies may move to areas with less onerous rules and restrictions.

"At the headline level we've got absolute unanimity across different countries, on a technical level there will be some differences but the commitment is to resolve them so markets can't use them to escape regulation," he said.

But he did note that the sort of complex financial products widely blamed for their part in causing the global financial crisis are starting to re-emerge.

"I think we're already seeing a reappearance in truth," he said.

"Banks are innovative by their nature, they're there to generate shareholder returns, they will innovate and they will create new products - the job of the regulator is to evaluate those products as they come along and decide whether or not they're good for the market." (Reporting by Tara Joseph-Hui; Writing by Rachel Armstrong; Editing by Kim Coghill)

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