Chart of the Week: Yuan Winners

A stronger Chinese yuan makes exports into China cheaper and imports from China more expensive.

The U.S. stands to benefit both ways – Chinese consumers get more purchasing power for high-end American exports, and domestic manufacturers will be better able to compete against Chinese producers and help America chip away at its massive trade deficit with China.

Other countries stand to benefit as well, perhaps none so much as Indonesia and India.

The chart below from our Weekly Investor Alert shows how stock markets performed in the Asia region from mid-2005 to mid-2008, the last period when the yuan was not tightly pegged to the U.S. dollar.

The top performer was China itself, but then came Indonesia’s stock market at 104 percent and India at 83 percent.

Indonesia is a major natural resource producer, and China is one of the main markets for its liquefied natural gas, palm oil, wood pulp and rubber. India competes with China in a range of manufactured products, including textiles and electric components. A stronger yuan could make Indonesian and Indian products more attractive to Chinese buyers (assuming the rupiah or the rupee is not appreciating at the same pace).

China, Indonesia and India are all countries we watch as part of our “E-7” group of the world’s most populous emerging economies, and we will be watching as well to see the short-term and longer-term impact of yuan appreciation on the relationships among these nations.

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