On the day that China announced a willingness to let its currency (a.k.a. yuan, renminbi) appreciate, there was a fair amount of crowing from the “West.” In essence, many news outlets proffered an¬†erroneous belief that relentless developed world pressure had finally caused China to blink.
I was very quick to point out that China was entirely acting in China’s best interest. Whether¬†the Chinese government believes that the U.S. dollar’s days¬†of fiat currency dominance are numbered… whether¬†they seek to forge stronger ties¬†throughout¬†Asia… whether they regard the move as a way to help¬†reduce dependence on¬†exporting… whether they¬†covet additional¬†methods to¬†minimize the risk of asset¬†bubbles… China understands how to moderate¬†its high growth economy without killing it.
Of course, the mainstream media still doesn’t quite get it. It has since been reported¬†that the Chinese “move” was a mere ploy,¬†as Chinese banks bought U.S. dollars by the truck-load.¬†This… the media explained… was¬†yet another way to keep the yuan from appreciating to rapidly; the yuan story, they argued,¬†was a non-event.
Not so! Chinese¬†banks will¬†not load¬†up on a currency¬†like the U.S. dollar when it comes under greater¬†scrutiny in the months and years ahead.¬†In truth, China¬†will only buy¬†shorter-term U.S treasuries and U.S. dollars when it is beneficial to¬†do so… yet it will pull back on both when it determines that it is financially sensible.
China’s desire to finally let the yuan trade against other currencies is a bigger event than the mainstream media has actually identified; that is,¬†Asian neighbor economies are very likely to improve with an ability to export more to mainland China. And a more robust Asian region (think about the EU’s early hopes and dreams) should continue to benefit country ETFs from Indonesia (IDX) to Malaysia (EWM) to South Korea (EWY) to¬†Taiwan (EWT)¬†to India (EPI). (Review: “China’s Asian Neighbors Have The Most Attractive Stock ETFs.”)
Even as¬†global economic concerns are taking¬†stock assets down a notch, get a gander at the 6/24/2010 differences. Still think the yuan story was much ado about nothing?
|Global Economic¬†Fright Hurts Developed Country ETFs More Than Asian ETFs|
|¬†||¬†||¬†||¬†||¬†||¬†||Approx % Loss|
|iShares MSCI Hong Kong (EWH)||¬†||¬†||-0.3%|
|iShares MSCI Japan (EWJ)||¬†||¬†||¬†||-0.3%|
|iPath MSCI India ETN (INP)||¬†||¬†||¬†||-0.6%|
|iShares MSCI South Korea (EWY)||¬†||¬†||-0.7%|
|iShares MSCI Malaysia (EWM)||¬†||¬†||¬†||-0.8%|
|iShares MSCI Taiwan (EWT)||¬†||¬†||¬†||-0.8%|
|iShares MSCI Switzerland (EWL)||¬†||¬†||-0.9%|
|iShares MSCI Germany (EWG)||¬†||¬†||¬†||-1.1%|
|SPDR Trust S&P 500 (SPY)||¬†||¬†||¬†||-1.7%|
|iShares MSCI Canada (EWC)||¬†||¬†||¬†||-1.7%|
|iShares MSCI United Kingdom (EWU)||¬†||¬†||-1.8%|
|iShares MSCI Netherlands (EWN)||¬†||¬†||-2.0%|
|iSahres MSCI France (EWQ)||¬†||¬†||¬†||-2.3%|
|iShares MSCI Italy (EWI)||¬†||¬†||¬†||-3.0%|
Disclosure Statement: ETF Expert¬†is a web log (‚ÄĚblog‚ÄĚ) that makes the world of ETFs easier to understand. Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. The company and/or its clients may hold positions in the ETFs, mutual funds and/or index funds mentioned above.¬†The company receives advertising compensation¬†from Invesco PowerShares Capital Management, LLC and Geary Advisors, LLC. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. Investors who are interested in money management services may visit the Pacific Park Financial, Inc.¬†web site.