User 305589

No-Brainer: Buying Yuan / Asia / EM and Selling Dollar / Euro / XLF

domestic demand in China these days is essentially state-induced demand. Only time will tell whether they can buy themselves enough time again. It worked duriong the Asian crisis in the late 1990s. Whether it will work this time again is much more uncertain, imho. And of course, ANY figure published by Bejing has to be taken with more than a grain of salt.

On May 18 02:26 PM The Aft Deck wrote:

> Beijing reported that investment in factories and property development
> jumped 30.5 percent during the first four months of the year to 3.71
> trillion yuan ($543.2 billion)
>
> There were some other factors in the trade figures, which can fluctuate
> wildly from month to month.
>
> Recent increases from the previous month in exports of clothing,
> shoes, plastics and other labor-intensive consumer goods suggest
> some recovery in demand. And surging imports of iron ore, crude oil
> and other commodities suggest that China's domestic demand may be
> stabilizing.
>

No-Brainer: Buying Yuan / Asia / EM and Selling Dollar / Euro / XLF

whenever i hear someone talk of a 'nobrainer' investment i get that strange feeling. most so-called nobrainer trades turn out to be terrible bets and should never have been done if the brain was properly involved in the first place.
That being said, betting on Asia may work well - though i don't think it will work out as nice and as fast as most people and as the author of the article obviously believes. Asia as a whole is extremely export-oriented - with their major customers (Europe, USA, Japan) being in bad-terrible shape right now. Don't get fooled by the so-called inner-Asian trade. It is , to a large extent, reflecting the production chain of goods finally ending up in the USA or Europe or Japan. All that the Chinese can do and are doing at this point is to use their 2 trn $ in currency reserves to either buy commodities, build their infrastructure, artificially boost their economy with forced lending and artificial public sector consumption and manipulate their economic statistics to make their economy appear stronger than it really is. However, they cannot solve any underlying issue by pursuing these things, all they can do is to buy time. If the USA/Europe/Japan are not swinging into a strong recovery mode, then the Chinese will have a huge problem and even their forex reserves cannot save them.
Like it or not (i don't like it, btw), there will not yer be a sustained recovery in Asia or elsewhere as long as the usa is not really recovering. It simply doesn't work given the size of the us economy and the close ties within the global economic village.
Betting on a china upswing is essentially a high beta bet on a strong u.s. recovery. At this point it is NOT a diversification and NOT a hedge against a collapsing us-dollar, counterintuitive as it may seem.