Business

Monday May 11, 2009

Foreign money deposits an alternative way to invest

By YVONNE TAN


FOREIGN currency deposits offer investors another way to divest their money but analysts caution to be careful especially in these volatile economic times.

“When we talk about invetsment, stocks, bonds and properties are usually the first types of assets that come to mind.

“However, growing affluence and the need for diversification in investment have contributed to the growing importance of foreign currencies as an asset class,” OCBC Bank (M) Bhd head of consumer financial services Charles Sik said.

When foreign currencies are weak, it makes this investment choice all the more viable. In the past one year, for example, the Australian dollar has slid 12.2% against the ringgit, making it cheaper for investors to buy more of the unit and investing it in foreign currency accounts.

However, using only the Australia dollar as an example, an analyst said annual interest rates offered for an Australia dollar denominated account at banks in Malaysia was 2.08% for a three-month tenure and up to 2.8% for a tenure beyond one year.

This is higher than the local currency fixed deposit rate of 2.5% for 12 months.

Most central banks globally have slashed key benchmark interest rates drastically over the past few months to spur consumption in view of deteriorating economies. Some, like the United States, have ended up with an interest rate of close to 0%.

Because local banks generally use the respective country’s benchmark interest rates as a guideline in setting their foreign deposit rates, analysts feel that now is not the best time to indulge in a foreign currency investment type.

“With global markets still relatively unstable, the currency risk factor is also something one should consider,” a banking analyst said.

At OCBC, Sik said there were two main basic foreign currency deposit products, namely the foreign currency call account, which is quite similar to a savings account but denominated in foreign currency and the foreign currency time deposit product which is an account with fixed returns and maturity periods.

OCBC also has what is called yield enhancement deposits, commonly referred to as dual currency investments in Malaysia. These instruments pay higher interest rates compared to foreign currency time deposits, Sik said.

Sik said the bank had witnessed “strong growth” in foreign currency deposits, more so in the dual currency investments over the last six months.

Citibank Bhd head of wealth management products Aisyah Lam noted that local retail investors were now more discerning and keen to diversify their investment portfolios in order to reduce and spread their risk.

She said Citibank’s foreign currency deposits base had grown 20%, year on year. “This rate of growth is remarkable relative to the industry average of 7% to 8% on local currency deposits over the last few years,” Lam said.

She expects Citibank’s foreign currency base to double by year-end with strong support from its dual currency investments.

“The global foreign exchange market in recent years has been extremely vibrant, compared with the stock market giving investors opportunity to gain from buying foreign currencies that appreciate against other currencies within a specific timeframe,” she said.

Lam said US$3,000 was required to open a foreign exchange deposit account at Citibank.

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