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Wednesday, May 27, 2015

Another Positive For Chinese Stocks for Overshore Investors

Should the strengthening trend of the Remimbi continue of accelerate any investments in Chinese stocks will gain in local currency value even if the stock market is unchanged or falls less than the exchange rate goes up. Such would be the case for US investors invested in a US Etf of Chinese stocks.


May 26, 2015 6:07 pm

China currency is ‘no longer undervalued’, say


The International Monetary Fund has declared that China’s currency is “no longer undervalued”, marking a significant shift after more than a decade of criticism of Beijing’s tight management of the renminbi.
The move amounts to a major vote of confidence in Beijing and the renminbi at a critical time. It also puts the IMF at odds with its biggest shareholder, the US, which insists that China continues to draw an unfair trade advantage from a renminbi that it considers “significantly undervalued”.

This a further step towards the Chinese currency becoming part of the IMFs SDR  giving it the status of a reserve currency, 
This article explains the implications in more detail.

A rough comparison in terms of market impact would be similar to the changes described in my earlier post on the changes in the weighting of Chinese stocks in major indices.....multiplied by hundreds of millions measured in $.

With the remimbi part of the SDR(think of it as an "index of reserve currencies" and its status as a reserve currency Central Banks around the world will need to hold Remimbi in their currency reserves ...reducing their weighting in Yen $ and Euros. It would be hard to see this as not increasing the value of the Remimbi. Another positive trend for foreign investors in Chinese stocks.

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