RMB Time Deposits vs. P2P Lending: RMB 1.9% Devaluation – Where do investors go next?

12 August, 2015

Investments into the Chinese currency (RMB) have appeared to be a one way bet for investors in the past few years. The currency has undergone steady gains in value month after month against its major counterparts, the HKD included. Investors, as a result, latched on to the currency, taking time deposits to compound their investment returns further. But how much would you really have earned if you did the same?

How would P2P lending stack up against this supposedly hot investment?

The purpose of this post is to be educational and informational in nature, allowing the reader to form effective comparisons between RMB Time Deposits and P2P Lending on Monexo’s platform.fun kids bouncy slide

Let us imagine that you have held $100,000 of your RMB deposits in a time deposit account to boost your gains, at an average annual promotion rate of 3.8% for three months, and 1.6% annually thereafter.

Comparing RMB Time Deposits and P2P Lending on a Sunny Day
RMB Time Deposits
In 2013, the RMB saw a 2.9% return on the currency, thereby leading to a 5.15% return on an investment of HK$100,000 for the year. In the real world, there are FX conversion fees that apply twice, of 2% each. When that is factored in, a real net return of 1.02% is seen for the year.

P2P Lending
Since all of your investments are in HKD, there are no FX conversion fees that apply to any investments. Furthermore, returns are between 5-15% net of fees, demonstrating the profitability of P2P lending, as compared to RMB Time Deposits.

This returns brought on by RMB Time Deposits remains less than the 5 – 15% returns seen with P2P lending, which typically sees at least 5%, even on the highest quality, lowest return loans.

Comparing RMB Time Deposits and P2P Lending on a Rainy Day
RMB Time Deposits
The RMB is not a one way bet, contrary to the ideal. Instead, in 2014, the RMB saw a decline in value of 2.5% on the currency, thereby leading to a loss of 0.3% on investment of HK$100,000. When factoring in FX conversion fees, the loss grew to 4.21%.

P2P Lending
P2P investments, on the other hand, remain in HKD, and are therefore not subject to any FX risk. Investors can expect to achieve returns that are in between of 5-15% net of fees.

Just yesterday, 11 August 2015, a 2% depreciation in the RMB was noted, meaning over 20 billion yuan in investments was wiped off from Hong Kong’s total yuan deposits.

Analysts expect the currency to be devalued by as much as 10 percent within the year.

With P2P lending, though, you are not betting on a currency, thereby removing FX volatility from your worries. Like any loan, your risk assessment remains focused on repayment, and you are rewarded with interest payments.

Comparing Investment Autonomy
What’s more, is that Monexo’s, like other P2P lending platforms, allows investors to customize their rate of return by allowing them to build their own portfolios of loans. Rates of returns can go from 5% of interest, to 15% of interest. On the other hand, RMB Time Deposit rates are determined by the economy, limiting the choices you have.

Conclusion The easiness and control which with one can operate their P2P lending account at Monexo is incomparable to the rigid RMB time deposit investments offered.

But more importantly, there are certain volatilities attached with RMB time deposits, that are simply not present in P2P lending.

Author: Sahil Mohnani @ Monexo