InvestingDaily.com

Account Information

  • My Account

    Manage all your subscriptions, update your address, email preferences and change your password.

  • Help Center

    Get answers to common service questions, ask the analyst or contact our customer service department.

  • My Stock Talk Profile

    Update your stock talk name and/or picture.



Close
FEATURED STRATEGY

$1,230 in Instant Income?

$1,230 in Instant Income?Our top income expert recently pulled the wraps off his breakthrough moneymaking technique. And he proved beyond a shadow of a doubt how you can use it to generate instant cash payouts of up to $1,230 (or more). Over and over again. But then he took things a big step further and guaranteed you can make $1 million by following his program. And the second he did, our phones went nuts! Space is limited — get the details here.

 

 

Chinese Status Seekers

By Benjamin Shepherd on December 11, 2015

On Nov. 30, the executive board of the International Monetary Fund voted to finally add the Chinese renminbi to its Special Drawing Rights (SDR) basket of currencies. A sort of supranational currency, the SDRs are primarily used to bolster the international reserves of member countries and stabilize currencies in the time of crisis.

Basically, a currency in the basket becomes a “global reserve currency,” though in most cases that’s more a symbolic designation than anything, since it simply reflects that fact that the RMB is already commonly used in global trade.

Still, symbolism can have some practical consequences.

Most importantly, a currency included in the SDR basket must be freely usable and convertible. That basically means that the currency has been freely traded in the market, subject to at least limited to manipulation and anyone, anywhere can use it. Back in 2010, the IMF rejected the RMB for inclusion in the SDR basket precisely because it didn’t meet that criteria.

Anxious for the status associated with having a reserve currency, the Chinese have implemented a series of reforms over the past few years aimed at meeting those requirements. The country has opened up their stock and bond markets to more foreign investors and developed a deeper and more liquid foreign exchange market for the RMB.

The People’s Bank of China is also allowing entities more freedom to sell RMB-denominated debt in China, while easing limits on Chinese investment in foreign assets. Most importantly, it has been easing its grip on exchange rates, allowing the RMB to float more freely and loosening its peg to the U.S. dollar.

While the RMB won’t be officially added to the basket until October 2016, we’re already seeing the impact of the IMF decision. Just since Nov. 30, the RMB has depreciated by nearly 10% against the U.S. dollar, a pretty big move for the currency. Since the currency is likely to continue depreciating further from here, Chinese exporters should get a boost as their products become more competitive in the market.

And while estimates vary from forecaster to forecaster, asset managers at AllianceBernstein believe that China could see inflows of $3 trillion over the next few years while Morgan Stanley pegs it at closer $2 trillion. With China’s economy now worth about $10.4 trillion, either number isn’t exactly inconsequential and those inflows will provide a boost to asset values in the country.

Another important change on a similar front is that Chinese stocks could soon be included in MSCI indexes, some of the most commonly used investment benchmarks in the world.

Amazingly, major Chinese companies hadn’t been included in global indexes until just two weeks ago. Even now, only the 14 U.S.-listed Chinese stocks are included in global MSCI’s global indexes, with half added on Dec. 1 and the other half to be included on June 1.

To put that into perspective, there’s more than $9 trillion worth of assets indexed to MSCI’s benchmarks. Based on an estimate from Goldman Sachs, as much as $94 billion worth of those Chinese stocks may need to be bought for funds to match their indexes.

Given the magnitude of just that small change, consider the impact of the potential inclusion of all Chinese A-shares into MSCI’s Emerging Market Index. While MSCI has said China isn’t there yet and needs to make more progress on market liquidity and access, that progress probably will be made. The Japanese yen wasn’t generally recognized as fully convertible until two years after it was added to the SDR, and it was some time after that before its markets were fully open.

So the IMF’s decision to include the RMB in the SDR basket isn’t going to a have a huge immediate impact on the Chinese economy. That’s especially true is that decision is mostly just a reflection of economic realities in place, rather than just an arbitrary move simply to create an internationally important currency. But it has triggered an evolutionary process which will bring greater integration of the Chinese economy with the rest of the world and boosting China’s economic clout over time.


You might also enjoy…

 

Forget Buy and Hold. Here’s how to retire faster…

I’m not a fan of “buy and hold.” Gurus like to tell you that patience is the key, but I call horse puckey.

We’ve discovered an investing technique that consistently pays out easy-to-repeat profits.

One that’s proven to beat the market 2,082% in head-to-head testing.

And one that’s generated over 488 winners since 2011.

This method is so powerful, in fact, some of the investors we’ve let use it reported back to us saying they’ve made $71,425… $82,371… and even as much as $151,000 in a single year thanks to this “trick.”

That’s how powerful this investing technique is!

What what exactly is this mysterious method? I’ve put all the details together here.

Stock Talk — Post a comment Comment Guidelines

Our Stock Talk section is reserved for productive dialogue pertaining to the content and portfolio recommendations of this service. We reserve the right to remove any comments we feel do not benefit other readers. If you have a general investment comment not related to this article, please post to our Stock Talk page. If you have a personal question about your subscription or need technical help, please contact our customer service team. And if you have any success stories to share with our analysts, they’re always happy to hear them. Note that we may use your kind words in our promotional materials. Thank you.

You must be logged in to post to Stock Talk OR create an account.

Create a new Investing Daily account

  • - OR -

* Investing Daily will use any information you provide in a manner consistent with our Privacy Policy. Your email address is used for account verification and will remain private.