Surprise yuan devaluation impacts Asian currencies, investments

A sharp devaluation of China’s currency, the renminbi, took many by surprise last week, but despite the wide market surprise, it is far from the only regional currency that has depreciated significantly against the U.S. dollar.

And the impact on the hospitality industry and related investments is significant. 

Other Asian currencies followed the renminbi down.

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The downward trend could and should open the door for more foreign investment in the hotel and hospitality sector, particularly from companies with access to the stronger U.S. dollar.

For the time being, however, there is more money in the market than deals to be made and that is creating upward pricing pressure, according to a new report by CBRE.

“Stronger appetite for hotel investment is seen but deal flow is limited by availability for sale,” said Ada Choi, senior director of research at CBRE Asia Pacific.

The Malaysian ringgit, Indonesian rupiah, Thai baht and New Taiwan dollar are all at multi-year lows against the greenback, offering new advantages to hotel investors in the U.S. and Hong Kong.

“Overall, we hold the view that volatility of Asian currencies will be diminishing compared with the past three years,” Choi told Hotel Management. “Investors with a strong exchange rate, like that of the U.S. dollar, will search for opportunities in countries that have experienced currency depreciation.”

Although it is a Chinese territory, Hong Kong’s currency is pegged to the dollar, providing investors based in the financial center with an advantageous position for hotel investment in much of Asia Pacific.

CBRE research shows Japan and Australia were top destinations for hotel investment in the first half of this year. Choi noted that these markets share two influential factors: they both possess large pools of assets and they are mature markets for international investors. Currency depreciation in the two countries has recently contributed to growing tourism numbers as well, she said.

And the sharp 2-percent depreciation of the renminbi on Aug. 10, the largest single day move in the Chinese currency since 1993, is masking the fact that Chinese investors are an important part of investment and consumption in other markets in the region, particularly in Japan and Australia.

Last year 2.7 million Chinese visited Japan, up 47 percent over 2013. The Australian government announced this month that it expects China (including Hong Kong) to surpass New Zealand as its top source of tourists in mid-2016.

The drops in the renminbi leveled off this week, with the chief economist at the People’s Bank of China (PBOC) saying the exchange rate will likely move in both directions as the economy stabilizes, with the possibility that government intervention “could be either way.”

Should the renminbi hold steady around its current value for the remainder of the year, as many expect, strong outbound tourism is likely to continue. However, further depreciation could significantly alter the Asia-Pacific landscape and increase the appeal of China-based assets.