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

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

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Martin Wolf on China Capital Controls (videos)

UPDATE 27 Jan 2016: Shanghai Stock Exchange Composite Index closes at 2735.56, DOWN -47% from its June 12, 2015 close of 5166.35:

Shanghai Composite Index (source: google.com)

Martin Wolf on China capital controls | FT World - FT chief economics commentator Martin Wolf on whether China should tighten its capital controls to stem huge outflows of money, and the challenges posed by market turmoil and its slowing economy. Published on Jan 26, 2016

Published on Apr 8, 2015 - Martin Wolf, chief economics commentator, talks to the FT's Michael Skapinker about China’s economic slowdown and whether there is still reason to be optimistic about its prospects.

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China: Yuan, Markets, Economy, 'Don't Worry, Everything Is Under Control'

China: Yuan, Markets, Economy--'Don't Worry, Everything Is Under Control'--

PIMCO's Crescenzi: No One Knows What China Will Do Next - PIMCO's Anthony Crescenzi discusses his outlook for China and market volatility. He spoke on "Bloomberg Markets" on January 15, 2016 (video above). 

The yuan and the markets | The Economist: "... China is not normal. It is caught in a dangerous no-man’s-land between the market and state control. And the yuan is the prime example ... because a stronger [U.S.] dollar has been dragging up the yuan, the People’s Bank of China (PBOC) has tried to abandon its loose peg against the greenback since August; but it is still targeting a basket of currencies. A gradual loosening of capital controls means savers have plenty of ways to get their money out. A weakening economy, a quasi-fixed exchange rate and more porous capital controls are a volatile combination. Looser monetary policy would boost demand. But it would also weaken the currency; and that prospect is already prompting savers to shovel their money offshore. In the last six months of 2015 capital left China at an annualised rate of about $1 trillion. The persistent gap between the official value of the yuan and its price in offshore markets suggests investors expect the government to allow the currency to fall even further in [the] future ... The government has reacted by trying to rig markets. The PBOC has squeezed the fledgling offshore market in Hong Kong by buying up yuan so zealously that the overnight interest rate spiked on January 12th at 67%. Likewise, in the stockmarket it has instructed the “national team” of state funds to stick to the policy of buying and holding shares ..." (emphasis added, read more at the link above)

1-year chart of the Shanghai Composite Index (source: google.com)

Twitter feed--Shanghai Composite Index--
Tweets about Shanghai Composite Index

See also: Xi’s new model army | The Economist: "... Late in 2014 President Xi Jinping went to Gutian, a small town in the south where, 85 years before, Mao had first laid down the doctrine that the People’s Liberation Army (PLA) is the armed force not of the government or the country but of the Communist Party. Mr Xi stressed the same law to the assembled brass: the PLA is still the party’s army; it must uphold its “revolutionary traditions” and maintain absolute loyalty to its political masters. His words were a prelude to sweeping reforms in the PLA that have unfolded in the past month, touching almost every military institution. The aim of these changes is twofold—to strengthen Mr Xi’s grip on the 2.3m-strong armed forces, which are embarrassingly corrupt at the highest level, and to make the PLA a more effective fighting force ..."

See on Domain Mondo:

• After Wuzhen, Should ICANN President & CEO Fadi Chehade Be Fired?
• What Domain Mondo Will Be Watching For in 2016
• China, ICANN, Domain Names, Lies, Facts, Hype, Truth (video)

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'We May See A Lot Of Dead Unicorns' (video), China, and the Fed

"You only find out who is swimming naked when the tide goes out"--Warren Buffett

UPDATE August 26, 2015:  The Emperor Wears No Clothes--China stocks fall again despite interest rate cut--

• China’s Stocks Slump as Rate Cut Fails to Stop $5 Trillion Rout - Bloomberg Business 
• SHCOMP Shanghai Stock Exchange Composite Index: closed DOWN at 2,927.288 (-37.679  -1.27%)
• China market slump: Shares end lower despite rate cut - BBC News
• Meet Jim Chanos: The man who said China is in the midst of an unsustainable credit bubble - The Economic Times

"Chinese equities have lost half their value since mid-June, as margin traders closed out bullish bets and concern deepened that valuations are unjustified by the weak economic outlook ... “The prevailing sentiment is still that investors want to cash out, whatever the government does,” said Ronald Wan, chief executive at Partners Capital International in Hong Kong. “Confidence is already damaged. Doubts over the effectiveness of policies are getting bigger. The market will remain under selling pressure for a while.” The People’s Bank of China said it will cut the one-year lending rate by 25 basis points to 4.6 percent and lower the required reserve ratio by 50 basis points for all banks. The move, which follows the biggest devaluation of the yuan in two decades earlier this month, comes amid signs of decelerating growth for the world’s second-biggest economy. A rate cut failed to boost the market for a second straight time as stocks ended lower after the last reduction in June." source: Bloomberg Business (emphasis added)

Unicorns, China, and the Fed--Where do we go from here?

Unicorns: Marc Benioff says "We may see a lot of dead unicorns."--Unicorns May Struggle in Tougher Market--Salesforce.com CEO Marc Benioff discusses the selloff in the stock market and his concerns about technology and Web-based companies that have raised money at valuations exceeding $1 billion, called unicorns. He speaks with Bloomberg's Emily Chang, August 24, 2015, in the video above.

China: The Shanghai Composite Index has lost 22 percent in four days--steepest retreat since 1996--to 2,964.967 on Tuesday. DeMark Says Chinese Stocks Are at Make-or-Break Inflection Point - Bloomberg Business: "Tom DeMark, who predicted this month’s selloff in Chinese stocks, said the Shanghai Composite Index may extend its decline by 13 percent should it stay below a critical technical level on Wednesday. A failure to close above 3,200, or almost 8 percent higher than the Tuesday’s level, may open the way for a move to 2,590, which would be the lowest since November, according to DeMark, founder of DeMark Analytics. An advance above that level, however, would signal the stock rout which has wiped out more than $4 trillion in market value, may be over, he said. “We are teetering on the edge,” DeMark, 68, who has spent more than 40 years developing indicators to identify market turning points, said by phone from Scottsdale, Arizona." 

The Fed: China may be the "bunker buster" to the US Federal Reserve's plans to raise interest rates in September. Citi: The Fed Will Still Hike in September, But There's One Big Wild Card Ahead - Bloomberg Business: "Fed Vice Chair Stanley Fischer's appearance at the forthcoming Jackson Hole economic policy symposium [Aug. 27-29, 2015] is the 'key wild card' ... If he shows signs of worrying that the transitory downward pressures (commodity and energy prices and the appreciating dollar) ... THAT would be a big event ... [suggesting] reduced confidence in reaching the Fed inflation target in the medium term."



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China, Shanghai Composite Index, Global Economic Ramifications (videos)

July 28, 2015: Chinese Government Support Tested as Stocks Extend Rout - Chinese stocks fell in volatile trading, extending the biggest one-day loss since 2007, as concern grew unprecedented government intervention will fail to shore up equities.

Chinese Stocks Fall in Volatile Trading, Extend Rout - Bloomberg Business (July 28, 2015): "Chinese stocks fell in volatile trading, extending the biggest one-day loss since 2007, as concern grew unprecedented government intervention will fail to shore up equities."


The Shanghai Composite Index Took a Beating Monday, July 27th: Joe Weisenthal's Killer Chart (video above)

Shanghai Composite Index dropped -345.35 (8.5 percent) to 3,725.56 at the close on July 27, 2015:  China Has Biggest One-Day Stock Crash Since 2007 - Bloomberg Business (July 27, 2015): "China’s stocks tumbled, with the benchmark index falling the most since February 2007, amid concern a three-week rally sparked by unprecedented government intervention is unsustainable."

The ramifications will affect the global economy -- check current Shanghai Composite Index

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