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Michael Michaud is the founder of Invest2Success.com (http://www.invest2success.com/) and the Invest2Success Blog (http://invest2success.blogspot.com/). He has been investing and trading in the financial markets since 1989. He founded Invest2Success.com to empower individual institutional... More
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  • Yuan Flexibility and Global Markets 0 comments
    Jun 28, 2010 8:13 AM | about stocks: LFC, ING, AIG
    Chinese Yuan

    China is now publicly stating they have ended the peg of the Yuan to the US Dollar last week, giving some strength to the Japanese Yen, Singapore Dollar, other Asian currencies, as well as the Yuan. The Yuan should strengthen more fundamentally. The Yuan is without a doubt the leading currency of Asia, and shall I say, possibly the entire world right now, with the rest of the world trying to cover their collateral damage and survive another round of debt crisis problems.

    Yuan Up China Stocks Down?

    If this turns out to be true, I would then be looking to possibly short sell some China stocks which I have a short sell on China Life Insurance posted below. I’m not so inclined of the idea of shorting the worlds third biggest economy or any company involved in it, but this may be the best low-risk high-reward to do that. Long-term China is a solid green light buy signal. For the short to intermediate term, short a few highly liquid China stocks may provide some good short term returns, while creating a setup to buy longer term.

    The US Dollar and Near Term Weakness Forecast

    The US Dollar has been pretty strong lately, and at a rate faster than normal. I suggest a short to intermediate term reversal to the downside could happen for the USD for the time being. The last two weeks have been seeing a slight uptrend of the Euro and Pound to the Dollar. This forecasted reversal of the USD could be a matter of weeks to months depending on if there are more shocks from debt laden Europe affecting the Euro. The Yen, Australian and New Zealand Dollar look to be leading the way already for a softer Dollar now. Long-term the Euro looks worse off than the US Dollar, but for now the Euro is still holding its line in the financial sand.

    What If the Yuan Devalues?

    The fear in the markets right now is that if the Yuan devalues, instead of appreciating, having the opposite effect of what many around the world and especially what the USA wants. I’m looking for continued appreciation of the Yuan but in a structured manner as China would not like to see a lot of volatility on the Yuan, lessening the shock to its economy, and I would say the global economy too. I commend China for doing it their way even with all the global pressure on them to do it. They already have been doing it for a few years now by tightening their money supply to slow down their economy step by step, and setting up currency swap agreements with central banks around the world, especially the ones they trade with. It’s all going to work out good for everyone with the ending of the Yuan peg in time I think.

    Buy the Yuan Sell China Stocks?

    With the Yuan increasing, then very possibly China economic growth should slow at the same time. It would be prudent to watch this closely going forward for the time being no matter where in the world you invest. On this fundamental forecast theme, and my low-risk high-reward swing trade trade plan strategy, I’ve got a short-sell on China Life Insurance this week. If all goes well, the extended take profit targets may be met here making for some very attractive buy and accumulate lower prices in the future.

    Sell Short China Life Insurance – Ticker LFC

    Sell Entry: 69.39 to 67.59

    Stop-Loss:73.96

    Take Profit Areas: 59.61 to 58.23, 55.22 to 53.87, 45.82 to 44.76, 33.63 to 32.95, 21.38 to 20.96

    China Life Insurance Company Profile

    China Life Insurance Company Limited provides various insurance products to individuals and groups in China. The company operates in three segments: Individual Life Insurance, Group Life Insurance, and Accident and Health Insurance. The Individual Life Insurance segment offers participating and non-participating life insurance and annuities to individuals. Its products comprise long-term health and accident insurance products. The Group life insurance segment provides participating and non-participating life insurance and annuities products to companies and institutions. It offers various long-term insurance products. The Accident and Health Insurance segment provides short-term accident insurance and health insurance to individuals and groups. The company distributes its products through its direct sales force, exclusive agent force, and various intermediaries, as well as through bancassurance arrangements. The company was founded in 1949 and is based in Beijing, China. China Life Insurance Company Limited is a subsidiary of China Life Insurance (Group) Company.

    Click the China Life Insurance stock chart for a larger view.

    China Life Insurance Stock Chart


    Disclosure: Going short per trade plan above.
    Stocks: LFC, ING, AIG
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