On the day that China announced a willingness to let its currency (a.k.a. yuan, renminbi) appreciate, there was a fair amount of crowing from the “West.” In essence, many news outlets proffered an erroneous belief that relentless developed world pressure had finally caused China to blink.
I was very quick to point out that China was entirely acting in China’s best interest. Whether the Chinese government believes that the U.S. dollar’s days of fiat currency dominance are numbered… whether they seek to forge stronger ties throughout Asia… whether they regard the move as a way to help reduce dependence on exporting… whether they covet additional methods to minimize the risk of asset bubbles… China understands how to moderate its high growth economy without killing it.
Of course, the mainstream media still doesn’t quite get it. It has since been reported that the Chinese “move” was a mere ploy, as Chinese banks bought U.S. dollars by the truck-load. This… the media explained… was yet another way to keep the yuan from appreciating to rapidly; the yuan story, they argued, was a non-event.
Not so! Chinese banks will not load up on a currency like the U.S. dollar when it comes under greater scrutiny in the months and years ahead. In truth, China will only buy shorter-term U.S treasuries and U.S. dollars when it is beneficial to do so… yet it will pull back on both when it determines that it is financially sensible.
China’s desire to finally let the yuan trade against other currencies is a bigger event than the mainstream media has actually identified; that is, Asian neighbor economies are very likely to improve with an ability to export more to mainland China. And a more robust Asian region (think about the EU’s early hopes and dreams) should continue to benefit country ETFs from Indonesia (IDX) to Malaysia (EWM) to South Korea (EWY) to Taiwan (EWT) to India (EPI). (Review: “China’s Asian Neighbors Have The Most Attractive Stock ETFs.”)
Even as global economic concerns are taking stock assets down a notch, get a gander at the 6/24/2010 differences. Still think the yuan story was much ado about nothing?
|Global Economic Fright Hurts Developed Country ETFs More Than Asian ETFs|
|Approx % Loss|
|iShares MSCI Hong Kong (EWH)||-0.3%|
|iShares MSCI Japan (EWJ)||-0.3%|
|iPath MSCI India ETN (INP)||-0.6%|
|iShares MSCI South Korea (EWY)||-0.7%|
|iShares MSCI Malaysia (EWM)||-0.8%|
|iShares MSCI Taiwan (EWT)||-0.8%|
|iShares MSCI Switzerland (EWL)||-0.9%|
|iShares MSCI Germany (EWG)||-1.1%|
|SPDR Trust S&P 500 (SPY)||-1.7%|
|iShares MSCI Canada (EWC)||-1.7%|
|iShares MSCI United Kingdom (EWU)||-1.8%|
|iShares MSCI Netherlands (EWN)||-2.0%|
|iSahres MSCI France (EWQ)||-2.3%|
|iShares MSCI Italy (EWI)||-3.0%|
Disclosure Statement: Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. The company and/or its clients may hold positions in the ETFs, mutual funds and/or index funds mentioned above. The company receives advertising compensation at the ETF Expert web site from Invesco PowerShares Capital Management, LLC. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities.