2016-02-23

Will the Chinese Yuan Lose 30% of its Value? Investing in China (video)

Shanghai Composite Index
Shanghai Composite Index (source: google.com) 
UPDATE Feb 25, 2016: Lunar New Year post-holiday blues for the Shanghai Composite: the index dropped today 6.4% (see chart above), extending its decline this year to 22%. According to Seeking Alpha: surging money-market rates signal tighter liquidity and the offshore yuan has weakened for a fifth day, while China's vice finance minister warned of pressure on exports, and world leaders gather for a G20 meeting in Shanghai. Current market turmoil and a global economic slowdown are expected to be key topics of discussion.
    
Above: Real Trade Weighted U.S. Dollar Index: Major Currencies (source: stlouisfed.org)

Cash is King! Except when it isn't. The U.S. Dollar (USD) -- the "least dirty shirt" -- has a 38.5% gain in relation to other major currencies since 2011 (see chart above). The decline in the prices of commodities such as oil (which is priced in USD per barrel on major markets), has to be considered in context of the rise in the USD indexed against other major currencies.

How about the Chinese Yuan? China has a major bad-debt problem: "The debt problem in China has already reached the proportions of the U.S. subprime mortgage debacle." --China's Subprime Crisis Is Here - Bloomberg Gadfly (Feb 16, 2016).

Of Two Minds - The Chart of Doom: When Private Credit Stops Expanding... (Feb 5, 2016)"... the sole prop under the global "recovery" since 2008-09 has been private credit growth in China. From $4 trillion to over $21 trillion in seven years--no wonder bubbles have been inflated globally. Combine this expansion of private credit in China with the expansion of local government and other state-sector debt (state-owned enterprises, SOEs, etc.) and you have the makings of a global bubble machine."

"... From roughly 1989 to 2014--25 years--the "sure bet" in the global economy was to invest in China by moving production to China. This flood of capital into China only gained momentum as the yuan appreciated in value against the USD once Chinese authorities loosened the peg from 8.3 to 6.6 and then all the way down to 6 to the dollar. Every dollar transferred to China and converted to yuan gained as much as 25% over the years of yuan appreciation. Those hefty returns on cash sitting in yuan sparked a veritable tsunami of capital into China. Now that the tide of capital has reversed, nobody wants yuan: not foreign firms, not FX punters and not the Chinese holding massive quantities of depreciating yuan. This is why "housewives" from China are buying homes in Vancouver B.C. for $3 million. That $3 million could fall to $2 million as the yuan devalues to the old peg around 8.3 to the USD ... But that doesn't mean the devaluation of the yuan has to stop at 8.3: just as the dollar's recent strength is simply Stage One of a multi-stage liftoff, the yuan's devaluation to 8 to the USD is only the first stage of a multi-year devaluation."--Of Two Minds -Feb 17, 2016- Why the Chinese Yuan Will Lose 30% of its Value:

Meanwhile here's a video from Barron's--"Eric Chow on Investing in the Year of the Monkey" (Feb 3, 2016)--

Value Partners' hedge fund manager Eric Chow discusses with Barron's Asia Isabella Zhong his outlook for China's economy and why a Hong Kong property developer is one of his favorite picks. (2/3/2016)

Value Partners domain name: valuepartners.com.hk

Caveat Emptor!




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