Let us create a 3D eBook for you!
Let us create a 3d Digital eBook for you! DigyCat.com

Chinas Inscrutable Currency Strategy


Purpose: Expose Opportunities for Smart Investors

The move by China's central bank to drop the yuan's rigid peg to the dollar on the day of my return after a three-week trip to Asia left a host of questions unanswered. The basket of currencies that will allegedly determine the value of the yuan going forward was not disclosed. What sort of band the currency will be allowed to fluctuate within is not at all clear. The 2% revaluation in the currency on Thursday followed by a slight strengthening on Friday week may actually encourage further short-term speculation since most economists believe the yuan is undervalued by roughly 10% to 20%. With $1 trillion of trade transactions each year and hot money capital inflows equivalent to 5% of its GDP, the uncertainty concerning the Chinese currency is high.

Not In the Mainland
In the near term, this uncertainty gives investors an opportunity to benefit not just from the expected strengthening of the Chinese currency but the overall rise of Asian currencies against the dollar. In early 2005, I advised clients that the Euro's rise against the dollar was over and that Asian currencies would be the next area to appreciate versus the dollar. It may turn out that many of your best China investment options don't involve investing in mainland Chinese companies at all.

Direct Currency Approach
The cleanest direct currency play on the expected rise in the yuan (also referred to as the renminbi) is to open a renminbi currency account at Everbank. A leading online bank ranked "Best of the Web" by Forbes, Everbank offers a variety of world currency accounts as well as FDIC backed three and six month CD's which offer attractive rates.

Direct iShare Approach
Another direct equity China play is through the China iShare (FXI) that tracks the FTSE/Xianhua China 25 index that is comprised of 25 of the largest and most liquid China names. FTSE is a UK based index company and Xianhua is a China based media company.

All of the 25 stocks included in the China iShare are listed on the Hong Kong Stock Exchange. Some of them are incorporated in mainland China (H shares) and some of them are incorporated in Hong Kong (red chips). The total market capitalization of the index is $170 billion. The broadest Xinhua China index includes 1,355 listed companies with a total market cap of $550 billion.

To put this in perspective, the average market capitalization for a company in the S&P Global 100 Index is $70 billion. Again, that's for one company. The China iShare provides good exposure to three key sectors of China: energy (20%), telcom (19%) and industrial (18%). This concentration can be viewed as a plus or a minus depending on your perspective. For example, some smart investors are placing a bigger bet on China's consumer markets. The top five companies represent 40% of the index. The annual operating expenses of the China iShare are only 0.74% compared to 2% plus for other alternatives out there including actively managed Asia and greater China region funds. Keep in mind that most of these companies are still largely controlled and owned by the Chinese government.

Indirect Approach
The best way to invest in China may be through more indirect vehicles that benefit from Chinese growth and its currency moves. One example of an indirect investment in China is through the Hong Kong iShare (EWH). It has sizable allocations to Hong Kong real estate (33%), utilities (17%) and banking (16%). Having just returned from a trip to Hong Kong, it seems clear to me that real estate markets have a way to go before becoming too pricey. Supply is inflexible and even if prices rise as expected 30% during the next 18 months, price levels will still be about 50% below where they were in 1997. Being the last Asian currency pegged to the dollar should encourage capital inflows. Furthermore, the Hong Kong market has been much more successful than the Shanghai and Shenzhen stock exchanges signaling that it will be China's financial capital for the foreseeable future.

Indirect Currency Play
China's move last week will also increase pressures for a number of other undervalued Asian currencies to appreciate. To compete with the China export machine, many Asian countries have resisted letting their currencies rise but now they have a bit of room to maneuver. The Malaysian ringgit was released from its peg to the dollar last week and it rose 0.7% the first day. While currency appreciation will somewhat dampen export growth it will also reduce the cost of rising energy import costs and analysts expect the economy to grow 5.5% this year. The easiest way to invest in Malaysia is through the Malaysia iShare (EWM) which tracks a basket of leading companies listed on its exchange. Another attraction - the annual fee for the Malaysia iShare is only 70 basis points.

The Play for the Informed
Malaysia is oftentimes overlooked by investors even though it has progressed quietly but remarkably from a relatively poor producer of raw materials to a bustling and broadly diversified middle income country.

Malaysia, positioned along the strategically important Straits of Malacca , should be on every investors radar screen for the following reasons: It has little external debt and healthy foreign exchange reserves. In area, it is slightly larger than New Mexico.

  • Malaysia has a balanced economy with strong industrial and service sector, important natural resources and openness to foreign investment.
  • It has a parliamentary system and divided powers between central government and 16 states and federal territories.
  • Malaysia is well situated to benefit from growth in the region with key export and investment partners being Japan, China and the USA.
  • Natural resources include tin, petroleum, natural gas, timber, copper, iron ore, bauxite. Small but consistent exporter of oil and natural gas.
  • It has a young and increasingly well-educated population with a median age of 24 and a literacy rate of 90%.
  • Malaysia's per capita income is approaching $5,000. Solid middle-income country with growing middle class.
  • The Kuala Lumpur Stock Exchange, also known as Malaysia Bursa has over 800 companies listed.

    Canada?
    Another smart indirect China play would be to invest in the Canada iShare (EWC). The Chinese are going on a buying spree investing in Canadian energy companies and recently plunked down $2 billion to build a thousand mile pipeline from Alberta tar sands to port on the west coast and onward to Beijing and Shanghai. The Canada iShare tracks the MSCI Canada Index that has 40% exposure to Canada's energy and materials sector.

    Starbucks?
    And what about Starbucks (SBUX) as a China play? Starbucks has about 9,000 stores worldwide and in the first quarter of 2005 its sales were up 27% and revenue exceeded $100 million. It entered the Chinese market in 1999 and has about 300 stores that have performed beyond expectations. The company hopes to expand to 30,000 stores and China is a key part of its expansion strategy. With 250 million Chinese approaching middle-class and millions of new affluent status conscious youth, Starbucks expects that before long China will be its second most important market. During my recent trip to China trip, I visited ten Starbucks stores and all of them had brisk activity with a lot of young Chinese enjoying not only coffee products but the higher margin specialty drinks. Think the Chinese will always prefer tea? Japan shows that when income levels reach certain tipping points, consumer preferences change from tea to coffee. Starbucks always looks expensive but many great companies always are. Starbucks investors have made 43 times their investment in its 1992 IPO and revenue was up 27% in July.

    China represents an enormous opportunity for long-term investors but an indirect approach may be the smartest strategy.

    Next week: find out what is the next great Asian Bull Market in the 21st century - hint" It's not China!

    Carl Delfeld is head of the global advisory firm Chartwell Partners and editor of the Chartwell Advisor and the Asia Investor Intelligence newsletters. He served on the executive board of the Asian Development Bank and is the author of The New Global Investor (iUniverse:2005). For more information go to www.chartwelladvisor.com or call 877-221-1496

    Carl Delfeld is head of the global advisory firm Chartwell Partners and is editor of the "Chartwell Advisor" and the "Asia Investor Intelligence" newsletters. He served on the Executive Board of Directors of the Asian Development Bank in Manila and is the author of The New Global Investor (iUniverse: 2005). For more information go to http://www.chartwelladvisor.com or call 877-221-1496.


    MORE RESOURCES:

    Investing - Google News

    This RSS feed URL is deprecated

    This RSS feed URL is deprecated, please update. New URLs can be found in the footers at https://news.google.com/news

    Carrefour Steps up E-Commerce Push, Chases Deal in China - U.S. News & World Report


    U.S. News & World Report

    Carrefour Steps up E-Commerce Push, Chases Deal in China
    U.S. News & World Report
    People are silhouetted as they attend a news conference to present the strategic plan of French retailer Carrefour in La Defense, near Paris, France, January 23, 2018. REUTERS/Philippe Wojazer Reuters. By Dominique Vidalon. PARIS (Reuters) - Carrefour ...
    Carrefour Plans to Cut 2400 Jobs, Invest $3.4 Billion Bloomberg

    all 27 news articles »

    US Product Lets Investors Triple Bet on Popular Tech Stocks - U.S. News & World Report


    U.S. News & World Report

    US Product Lets Investors Triple Bet on Popular Tech Stocks
    U.S. News & World Report
    Commuters pass by the NASDAQ Marketsite in New York, May 21, 2012. REUTERS/Brendan McDermid (UNITED STATES - Tags: BUSINESS) Reuters. By Trevor Hunnicutt. (Reuters) - Investors are getting a high-octane way to bet on or against the stock market's ...

    and more »

    Cramer's guide to investing in the stock market's winning sectors - CNBC


    CNBC

    Cramer's guide to investing in the stock market's winning sectors
    CNBC
    As a result, investors flocked to steady growth stocks like Visa and Mastercard, shying away from traditional bank equities altogether. Other than Visa, Mastercard, Discover, PayPal and ancillary plays like Moody's and Morningstar, "it was simply too ...

    and more »

    The Dinner That Changed the Investing World - Wall Street Journal


    Wall Street Journal

    The Dinner That Changed the Investing World
    Wall Street Journal
    As the first U.S. exchange-traded fund was being launched 25 years ago, the fund's backers gathered for a casual dinner on the 10th floor of the American Stock Exchange's art deco downtown headquarters. Ivers Riley, an exchange executive, made opening ...

    Ripple Drops As Nervous Investors Flee Cryptocurrencies - Forbes - Forbes


    Forbes

    Ripple Drops As Nervous Investors Flee Cryptocurrencies - Forbes
    Forbes
    Charles Bovaird , Contributor I am a financial writer and consultant who focuses on investments. Opinions expressed by Forbes Contributors are their own. XRP fell today, losing more than other top cryptocurrencies. Shutterstock. Ripple's XRP token ...

    and more »

    General Electric: Lessons In KISS Investing - Seeking Alpha


    Weekly Register

    General Electric: Lessons In KISS Investing
    Seeking Alpha
    While I think retail investors often get themselves into silly situations, Keep It Simple Stupid (“KISS”) is always one of the best approaches smaller investors can take. While investors need to be educated on the companies they own or would like to ...
    Financial Newsletter - Zacks Investment Research Zacks Investment Research
    General Electric Company - GE - Stock Price Today - Zacks Zacks Investment Research

    all 208 news articles »

    One-Third of Americans Spend More on Coffee Than on Investing ... - Motley Fool


    One-Third of Americans Spend More on Coffee Than on Investing ...
    Motley Fool
    There are plenty of reasons Americans aren't investing as much as they should. For many workers, it's a matter of not having the money available after paying living expenses. For others, it's a matter of absent knowledge and fear. But even when these ...

    and more »

    'Cash Flow Investing' - A Report Card - Seeking Alpha


    'Cash Flow Investing' - A Report Card
    Seeking Alpha
    I have been a proponent of "Cash Flow Investing" for the last year and a half or so. I have never said that it is a substitute for appreciation plays but that it is an adjunct to them. For some people and institutions desiring a steady stream of income ...

    Social, bitcoin and other hot topics at the Inside ETFs conference - CNBC


    CNBC

    Social, bitcoin and other hot topics at the Inside ETFs conference
    CNBC
    The biggest names in the ETF business gather to debate the future of investing and break down the skyrocketing growth of exchange-traded funds.

    and more »
  • LargeFriends.com - the best dating site for plus-sized singles!
    SuccessfulMatchCentral.com - the best dating site for plus-sized singles!

    PreLaunchX

    MyIdeal Domain Is For Sale - $8,000 For Enquiries eMail Us

    © www.MyIdeal.biz - 2012

    home | site map | links