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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About Frank Holmes 282 Articles

Affiliation: U.S. Global Investors

Frank Holmes is CEO and chief investment officer of U.S. Global Investors, Inc., which manages a diversified family of mutual funds and hedge funds specializing in natural resources, emerging markets and infrastructure.

The company’s funds have earned more than two dozen Lipper Fund Awards and certificates since 2000. The Global Resources Fund (PSPFX) was Lipper’s top-performing global natural resources fund in 2010. In 2009, the World Precious Minerals Fund (UNWPX) was Lipper’s top-performing gold fund, the second time in four years for that achievement. In addition, both funds received 2007 and 2008 Lipper Fund Awards as the best overall funds in their respective categories.

Mr. Holmes was 2006 mining fund manager of the year for Mining Journal, a leading publication for the global resources industry, and he is co-author of “The Goldwatcher: Demystifying Gold Investing.”

He is also an advisor to the International Crisis Group, which works to resolve global conflict, and the William J. Clinton Foundation on sustainable development in nations with resource-based economies.

Mr. Holmes is a much-sought-after conference speaker and a regular commentator on financial television. He has been profiled by Fortune, Barron’s, The Financial Times and other publications.

Visit: U.S. Global Investors

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