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The winners and losers in banking after the Yuan slump

Shockingly and out of the blue China’s central bank decided to devalue RMB from Tuesday. In the past three days, the value of RMB has lost over 3% against the USD.

While the panic takes hold of currency traders and markets react, this is what we think might happen to bankers in China and beyond.

1. Bankers in China may start demanding pay rises

Bankers in China are used to the good life and a lot of this is down to the purchasing power they have buying imported goods and services. With the RMB down, this means they’ll be able to buy less and the longer this slump lasts the more frustrating this situation becomes.

“Maybe there will be people asking for a pay rise to offset the shrink of wealth,” suggests a Hong Kong-based investment banker who asked not to be named. “Meanwhile, bankers in Hong Kong must be pleased.”

Whether this is feasible given the ongoing freeze in IPO market and subsequent loss of revenues for investment banks remains to be seen.

2. There will be an exodus to Hong Kong and beyond 

Investment bankers with Mandarin language skills and experience on Mainland China deals know their worth to international investment banks in Hong Kong who are competing for a bigger slice of the pie. There’s no shortage of interest in moving from China internationally anyway and as one executive director in a local securities firm tells us “people don’t choose to work abroad just because of the exchange rate”, but this trend could accelerate if the currency slump continues.

3. Currency traders could benefit 

At a time of such massive fluctuation, foreign exchange (FX) trading volumes will go up, meaning that FX traders make bigger profits and their bonus potential increases. However things are not that clear yet. “I assume volumes are higher for currencies this week but will wait until the flow report comes out to confirm,” says a London-based Chinese FX strategist with a major European bank.

And while compensation could head up it won’t necessarily lead to more job opportunities for RMB traders. “It is just one additional FX pair and any trader can easily handle it,” points out a Zurich-based senior Chinese trader.

4. Private equity and VC firms could suffer

Funds who have already invested into China will suffer from the devaluation, even if it’s just a temporary accounting quirk. However, it’s not so clear cut. One Beijing-based PE investor says that it’s more to do with the specific portfolio that a fund has invested in, because different industry reacts differently to the devaluation. For example, what if it’s an export-led company? The RMB devaluation would actually boost revenues and returns.

Another Shanghai-based PE investor points to Japanese Yen. “The Yen has depreciated more than 50% against the dollar in the past three years,” he says, “Has that deterred foreign investment into Japan?”

5. More offshoring into China?

The cost of doing business in China has been steadily rising in the past few years. It’s more expensive than some surrounding Southeast Asian countries now, in relative terms.

Traditionally, China is seen as a low cost centre as well, therefore it’s been home to the back office operations for many global banks. But the rising cost has caused a few banks to move some basic-level jobs to India, according to a senior HR manager at the technology division of a global bank’s China operation. Now that the RMB is losing value again. If the drop goes on, it might spark a trend for China to attract more back office jobs once more. Don’t forget, the reverse has happened to Singapore before.

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