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When will China’s currency start to climb against the dollar?

posted on December 10, 2009 at 10:30 am
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When will China stop pegging its currency to the U.S. dollar and let the renminbi appreciate?

 The futures market now projects a 2.6% gain for the renminbi within the next twelve months. Some economists think that figure is low. Deutsche Bank chief China economist Ma Jun expects a 5% gain for the renminbi against the dollar in 2010 with appreciation beginning as early as March or April, Bloomberg reported.

What will decide if those projections are correct?

Watch China’s exports. If they rebound as quickly as economists now project, the Chinese currency could start to climb again in 2010. The sooner China’s exports to the rest of the world show solid growth again, the sooner the Beijing government will allow its currency to climb.

Figures for November exports, due out tomorrow, will give a useful signal on the speed of export growth. Exports climbed 1.4% in November, according to a survey of 26 economists by Bloomberg. That would mark the first increase in exports in 13 months.

Economists are expecting a big jump in Chinese exports in the first quarter of 2010. Macquarie Securities and the Royal Bank of Scotland are projecting 20% growth in exports in that period.

China has kept its currency pegged to the dollar at 6.83 renminbi to the buck since July 2008 in order to give Chinese exports a boost from a favorable exchange rate during the global economic slowdown. The renminbi had appreciated by 21% in the three years prior to the restoration of the peg that had been scrapped in 2005.

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8 comments

  • Mike on 10 December 2009

    Seems like it would be a good idea to invest in the renminbi. Worst case it stays pegged to the dollar otherwise it appreciates. What are the available vechiles to do this?

  • 6waysfrom on 10 December 2009

    Jim,

    Would a gold purchase by the Chinese also affect the renminbi’s value?

  • gusspresso24 on 10 December 2009

    Hey Mike,

    In the past Jim has mentioned either the mutual fund Matthews China (MCHFX), or the iShares FTSE/Xinhua China 25 ETF (FXI). It seemed he favored the mutual fund. Both of these are plays on the chinese stock market, not just currency, but both would get a boost from an appreciating renminbi and open you up to emerging market growth (course there is more risk involved with that).

    Check out his article here: http://jubakpicks.com/2009/11/24/how-to-escape-the-next-lost-decade/

  • Soonerxii on 10 December 2009

    MEAFX might not be a bad idea here.

  • gusspresso24 on 10 December 2009

    oh and a disclaimer, when the carry trade unwinds, both of those could take a significant hit. Might be a better time to buy in at a later date.

  • pnolan on 10 December 2009

    Use the ETF CYB to play the RMB. I am picking up an equal number of shares each month. Has not seen much volatility (as you would expect), but this could change the first quarter of next year.

  • EdMcGon on 10 December 2009

    There are PLENTY of good Chinese stocks. I can give you a list of them, but the point is that you can invest in the Chinese a lot easier (and more profitably) that way, if you’re willing to invest the time and do some research. If you don’t have the time, an ETF or mutual fund will do.

  • viwi on 10 December 2009

    EdMcGon:

    I agree with you; however, it is not easy to get hold of a reliable information. I know that some of my Chinese friends have first-hand information, but they only disclose it to me, when it is “too late”.

    How do you do your research?

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