"In the recent episode of the yuan depreciation, the evidence is clear that it is also not entirely market-driven," Yao said. "This surprising tact may have tamed arbitrage flows for now... [but] if the market sees the policymakers' logic, central-bank-engineered volatility may just provide better entry points for speculation."

The impact of the yuan's depreciation was also felt by investors who use offshore yuan, mainly kept in Hong Kong banks, to bet on Chinese bonds and other yuan-denominated products on the mainland. They invest through a select group of asset managers licensed to participate in the Chinese government's Renminbi Qualified Institutional Investor (RQFII) program. ("Renminbi" is another name for yuan.)

A March 19 report in the Securities Times said investors were pulling their money out of RQFII funds managed by Hong Kong-based China Southern Asset Management (CSOP). The yuan's depreciation had prompted these exits from CSOP, the largest RQFII manager with $3.8 billion in assets under management.

On the other hand, some RQFII managers are reading the yuan's depreciation as a positive development. Rosita Lee, head of the Investment Products and Advisory Business at Hong Kong's Hang Seng Bank, said investors in her bank's yuan-denominated products are more aware than ever of currency risks. But they're looking at the long-term upside for the mainland bonds, stocks and other targets of RQFII funds.

"We do not see material change in the fund flow of these products" since the yuan's depreciation began, Lee said. "The increased (yuan) volatility will inevitably increase the risk faced by these investors, but RQFII products will continue to have their appeal.

"The widened trading band ... is perceived as a healthy move for the (yuan's) long-term development," she said.

At the time of publication, the author held no positions in any of the stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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