This browser is no longer supported at MarketWatch. For the best MarketWatch. Dow 0. Nasdaq 1. GlobalDow 0. Gold Oil Visit Market Data Center. Latest News All Times Eastern scroll up scroll down. Should I cut them out of my will? What should I do? Search Ticker. In comparison, other economies such as the U.
This "speaks in favor" of foreign direct investments as well as risk assets in China, such as its stock market, and the yuan. Secondly, China's current account surplus could grow to almost 2. Next, China has a "solid yield carry" compared to the U. This can be achieved by borrowing in a low-yielding currency such as the U. So what's going on and what does it mean for your money? There are few factors driving the stronger yuan. One is that Chinese assets offer much higher interest rates than US and European ones.
That means China is attracting capital which will drive up its currency. Investors have also noticed that the Chinese authorities — who still closely monitor and manage the currency — don't seem to be too concerned about its current strength.
So they're more willing to bet on the currency strengthening still further. As we've pointed out here countless times, all else being equal, a weaker dollar is good news for risk assets in general. In effect, it means that liquidity is plentiful and everyone can get hold of all the dollars they need easily the US dollar is the global reserve currency, so everyone needs it.
The question is: what does it mean for your money? You can decide whether investing in China is something you want to do. And you only have to look at the slapdown Jack Ma took last year , with the scrapping of the Ant Financial IPO , to understand that when push comes to shove, the Communist party is in charge yes, America is tiptoeing around Jeff Bezos in a similar manner right now, but both the balance of power and the institutional protections make it an entirely different matter.
That said, some smart people reckon that Chinese sovereign bonds represent a good addition to a portfolio. However, as far as broader markets go, the biggest point to understand about a stronger yuan is probably this: if a weaker yuan is deflationary, a stronger yuan is inflationary.
A stronger yuan pushes up prices of Chinese exports, but it also enables China to buy more commodities per yuan, for example, which in turn may boost demand for raw materials even further than it already has. As long as they hold money in these accounts, investors benefit from any appreciation in value in the Chinese currency. They are IRA-eligible, and a monthly maintenance fee may apply.
As long as the yuan remains a non-deliverable currency, withdrawals can only be made in U. Another way to invest in the yuan is through exchange traded funds ETFs designed to perform in accordance with the value of the Chinese currency. This ETF is invested in a portfolio of dim sum bonds , which are issued outside of mainland China but are nonetheless denominated in the yuan.
The fund offers capital appreciation in accordance with the yuan, a generous dividend yield that can range from 3. Dividends are typically cash payments made to investors as a reward for investing in a security, fund, or stock. The fund also offers the potential for capital gains resulting from increased bond values. The fund aims to mirror the performance of Chinese interest rates and the value of the yuan relative to the U. Forward contracts allow two parties to exchange two currencies by locking in the pair's exchange rate today for settlement at some point in the future.
The initial forward contract is offset or unwound when its settlement date comes due. The difference in the exchange rates between the original forward and the offsetting trade is the gain or loss from the currency exchange rate movements. The net difference is typically settled in dollars, and no yuan changes hands. Investors wishing to maximize investment in the yuan through the use of leveraged investments may consider currency futures or forex market trading. Leveraged transactions use borrowed funds to enhance the gains or returns on an investment.
However, just as leverage can magnify gains, it can also magnify losses. Futures options on the yuan are also available. Futures are derivatives since they derive their value from the underlying investment. Futures contracts can be used to speculate on currencies and commodities. However, futures have preset expiration dates and are standardized unlike forward contracts, which allow customized amounts and settlement dates.
A limited number of forex brokers offer trading in the U.
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