- The yuan ended Asian trading Tuesday at 6.8136 per dollar, down about 0.23% from its close on Monday, when the currency rose 0.43% to a new high against the dollar after the weekend announcement by the People's Bank of China that it would ease the yuan's nearly two-year-long peg to the U.S. currency.
- The Chinese Ministry of Commerce Department came out with the latest announcement this Friday, June 25th, "the appreciation of RMB will generally have a positive effect on Chinese export industries". The government officer also announced "there would be a slower growth on exporting compare to the first two quarters due to increasing elasticity on RMB".
- On June 25th, Friday, one week after the announcement of a bigger flexibility of RMB to USD, RMB had its highest level of exchange rate ever in the history, 1 USD to 6.7896RMB.
- HK stock market increased as the expectation of RMB appreciation rose, high expectations on Chinese companies for 3rd and 4th quarters, especially state companies
- Former Goldman Sachs Chairman of Great China, Hu Zuliu said in the Financial Forum in Shanghai this week that "there would not be a problem if RMB appreciate for 20% in 2-3 years as long as the basic money reserve keeps".
- Recently, while the US congress advocates the appreciation of RMB, some investors guess China would use the huge Foreign Exchange Reserves that it holds to control the extend to rise
Thoughts:
- Although the Chinese government claims about the appropriateness of the exchange rate of RMB to USD, it should be determined by the basic demand and supply factors of the market. As one of the fastest growing economies in the world, appreciation is definitely necessary, but probably in a much lower pace then most people expected.
- On July 21st, 2005, China had its Exchange Rate Reform, which before the 2008 financial crisis. In a two-year time frame, RMB appreciated for more than 20% against USD. During the Exchange Rate Reform, Chinese economy reached a very strong page, so did the exports, which proved the rose in exchange rate would also be an opportunity for the market, not only a drag
- One of the most considered dilemmas when talking about RMB's appreciation is the effect on Chinese exporting industries. It's true that the price advantage would be taken away immediately because of the increasing exchange rate, but it's true that the importing materials' prices would also decrease largely.
- According to the survey of the exporting companies over south and east coast China, which compares the importing material price effect and exporting price advantage effect, RMB's appreciation actually reduces the cost of production. If it's the fact for most of the exporting companies among different industries, appreciation would lead to a Bullish of the Chinese economy, even lead to a Bullish world economy.
- I have a bullish view on the 3rd and 4th quarter market on Chinese economy and Yuan since Chinese government had a macro-policy control and adjustment of the market. The long-term effect need to watch but will not affect the bullish for the rest of 2010.
- It would be a good timing now for the currency trading speculations, not only RMB to USD, but also RMB to HKD and RMB to other currencies.
- Bullish on RMB and Chinese economy would also lead to more hot money flowing into China and I think thus would lead to a higher interest rate as a result.
Conclusion:
I'm bullish on Yuan and Chinese economy for the time frame till the end of 2010.
I'm bullish on Chinese exports for 2010.
The RMB has started appreciation since the past week, and I'm confident on a further appreciation of it in 1 year.
It's a good time for Yuan speculation and Asian Stocks since both Yuan and Yen are having a strong trend.
Liz. L
SA
Analyze Capital LLC
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