Trading of offshore renminbi futures in the Singapore Exchange (SGX) set a record in December fueled by the depreciation of the currency and the increased needs for hedging, which has had a negative impact on sales of structured products in the domestic market.

According to the exchange, USD/CNH futures' trading volume was up over 50% month-on-month to a record of 51,702 contracts, with US$5.1bn in notional value. "The high volatility environment increased the funding level of yuan related products and brought more attractive yields," said Gabriel Chan, structurer at United Overseas Bank.

According to Chan, the yield for yuan related products will raise around 20% to 30% as a result of the current volatility, although the subscription of such products will decrease.

"FX linked and USD/CNH linked products are a popular choice for investors," said Chan. "However, as these products are denominated in yuan, the extra yield earned from the product will have to compensate the loss from the depreciation of the currency, plus the recent riot in the A-shares market, I am not particularly positive about the on-going sales of products."

Kainoa Blaisdell, lead structured product strategist at NEBA Financial Solutions said "clients are pulling out from China and looking into Europe for safer options" and that under such high volatility in China, investors' would rather "play safe and choose to out-focus Asia".

"Clients are shifting to products linked to European assets like shares and indices. For those that remain invested in emerging markets, products with capital protection as well as guaranteed coupons are their new favourite."

Chan said that investors are seeking vanilla and capital protected products with interest rate linked products featuring the US constant maturity swap rate gaining popularity "as investors expect the Fed will gradually increase the interest rate in US".

With the depreciation of Yuan, the exchange rate of USD/CNY has surged since the beginning of the year and reached a 6.55 rate, last seen in 2011.

According to SRP database, there were 13 products linked to CNY/USD and 4 linked to CNH/USD thorough Asia in November last year and none in December.

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