When China relaxes the peg that ties its currency to the US dollar, a lot of pent-up appreciation will be unleashed. If you're an investor, it'd be wise to make a move soon.
From the perspective of the global economy, there's a whole lot that's wrong with China's refusal to let its currency appreciate against the U.S. dollar:
But if you're an individual investor looking to put money to work, the dollar-renminbi peg is a gift. And you'd better put it to work for you now, because it won't be here forever. (For my take on how long the peg will last, see my Jubak Picks blog post.)
Pros and cons of investing in currencies
Are you ready for the final straw? The currencies of many of these countries are much stronger against the dollar than they were at the beginning of 2009. Not only are emerging-market and commodity-economy stocks more expensive in their own currencies than they were when this rally started March 9, but they are superduper expensive to any investor who needs to buy them with U.S. dollars. More from MSN Money and MoneyShow.comHas Apple blown its big chance?2 ETFs to help you play China's growthHere comes the big tax squeezeJubak on video: The US-China financial tightropeAnother revolution coming in ChinaJubak on video: Will China let its currency float?Other currencies climb against dollar The Indonesian rupiah is 17% more expensive against the U.S. dollar than it was at the beginning of 2009. The Brazilian real is up 35% against the dollar in 2009. And the Australian dollar is inching toward parity with the U.S. dollar. It's up about 33% in the past 12 months.
Not the Chinese renminbi, though. In July 2008, when China re-pegged its currency to the dollar, it traded at 6.8 to 6.85 renminbi to the dollar. Today it trades at . . . 6.8 to 6.85 renminbi to the dollar.
I won't pretend that Chinese stocks are cheap now. The iShares FTSE/Xinhua China 25 (FXI) exchange-traded fund, or ETF, is up 88.5% since March 9. That's significantly more than the stunning 60.6% gain on the Standard & Poor's 500 Index ($INX) in that period. But it's less than the 122.7% appreciation -- in dollar terms -- in the iShares MSCI Brazil Index (EWZ) ETF.
Most of the difference in the gains in the China ETF and the Brazil ETF -- from the perspective of a U.S. investor tracking the world in dollars -- is due to the 35% appreciation in 2009 of the Brazilian real against the dollar versus the 0% appreciation of the renminbi against the dollar.
Video: The best plays for China stocks
Think about that for a moment. First, it means that U.S. investors just putting money into the Chinese market don't have to pay the penalty for 2009's incredible sinking dollar. Second, it means that these investors actually have the future appreciation of the renminbi to look forward to.
Continued: Spring-loaded currency
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1 Timothy 6:10
For the love of money is a root of all sorts of evil
It's the love of money, not just money itself.
I have been researching MCHFX for several weeks and seriously considering it .....I am curious....what do people reading this article think about that fund?
Thank you for any insight.
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