Financial investment products in any currency are never totally risk free.
So are the Renminbi bonds recently launched in Hong Kong.
In view of the growing interest in the Renminbi retail banking service which has diversified into credit card, checking account and RMB bond, the Consumer Council has highlighted some of the issues of concern to consumers.
RMB bonds in particular are a product of considerable interest to retail customers as their coupon rate is more attractive than RMB deposit rate.
However, it is important that prudent consumers contemplating acquiring RMB bonds should gain a good understanding of the risk factor inherent in any investment product.
First and foremost, the RMB bond is not a totally riskless product, and is not protected under the Investor Compensation Fund.
The Fund is set up to pay compensation to investors who suffer pecuniary losses as a result of default of a licensed intermediary or authorized financial institution in relation to exchange-traded products in Hong Kong.
Secondly, like other bond products, RMB bond is also subject to currency, credit, liquidity and interest rate risks.
For currency risk, the bond price, principal and coupon are settled in Renminbi and, therefore, the proceeds when converted into Hong Kong dollars may be less than the initial investment amount in Hong Kong dollar terms, due to any changes in the exchange rate and the bid-ask spread.
For liquidity risk, RMB retail bonds are normally unlisted and not actively traded in secondary market.
For credit risk, any changes of the credit standing of the bond issuers may adversely affect the ability of the issuers to repay the principal and interest to bond holders.
There is furthermore the risk of fluctuations in the interest rate as generally a rise in the interest rate causes decline in bond price, and vice versa.
Before any decision to subscribe RMB bond, consumers should understand such important information as risk factor, credit rating and the issuer's background which can be found in the offer documents on prospectus.
Consumers are strongly advised to read the documents carefully, understand the nature of RMB bond and its suitability for matching their own investment goals.
Other issues of interest to consumers in RMB banking services:
- Only people holding Hong Kong Identity Card can open a personal RMB account in Hong Kong.
- Individual consumers can exchange up to RMB20,000 per cashnote exchange transaction.
- A daily limit of RMB20,000 per person applies to conversion via RMB accounts. Therefore, when exchange worth more than RMB20,000, the conversion has to be performed by several days.
- For remittance by RMB account holders to an account in the Mainland maintained under the same name, the daily limit is RMB80,000.
The Consumer Council reserves all its right (including copyright) in respect of CHOICE Magazine and Online CHOICE ( https://echoice.consumer.org.hk/ ).