Chinese RMB - undervalued but what are the downside risks?
The Yuan has been appreciating pretty steadily over the last 12-18 months. As I understand it this is due to the Chinese government relaxing their grip on the RMB value and allowing it to move more freely. It seems that there are 2 main reasons they are allowing this (1) international pressure to balance their huge trade surplus (2) and this is particularly relevant in the past 12 months, to relieve inflationary pressure by making imported energy&food cheaper.
By many estimates the RMB is still undervalued by 20-40%, but what are the risks to an investor (assuming you can get access to RMB FX)? What events might lead to a sudden reversal of the recent trend and how likely is this? Or do you think it is a fairly reasonable 2-3 year bet, given that the price is basically manipulated by the Chinese government?
Best Answer
150 points
tlune answered one year ago …
According to Jimmie Rogers, and I wouldn't bet against him, the Renminbi is bound to appreciate against the dollar over the next few years, and he's putting his money where his mouth is by getting out of the dollar and putting most of his money in China. Rogers has been ahead of the curve on commodity investments and Asia over the last ten years or so, and I think he's still got it right. His most recent book is "A Bull In China."
Everbank, which is mentioned in the previous answer, actually has a Renminbi CD, with a minimum investment of $10,000. It doesn't pay interest, i.e., the only way it would appreciate is if the currency itself appreciates against the dollar, but it is FDIC-insured.
China has been permitting the Renminbi to rise gradually against the dollar and other currencies, a process which will likely continue for years to come. Nothing is certain (except death and taxes, of course), but I think this is a reasonable bet to make.
Answers
2775 points
Oldman answered one year ago …
if you can get to EverBank.com, i think you'll see whether it's appropriate for you to invest in 3 or 6 mo. C.D.' s of various national currencies. The risks are as you stat; the Central Bank of China may not want to keep the Yuan (renminbi) appreciating, because Chinese exports are declining, while food and housing costs are inflating...but the Central Comittee's actions are not predictable. Other good rates are NewZealand dollars (approx. 7.3%) and Icelandic Krona (8.9%), the latter based on an Euro convergence.
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3963 points
MNSL answered one year ago …
I agree with some points of above gentlemen. I think in the long run Chineae currency will appreciate.
Even though this is one of the greatest bull markets there will be strong correction time to time. We may see volatility in currency market and commodity market etc. One great example is recent fall of stock prices in China.
I can remember some investors discouraged commodity investment due to volatility. It is same with stock market as well now. If some body had read hot commodities written by Jim Rogers 05 years before he would have built huge wealth now. However I am cautious about some commodities now. There will be some correction next 09 months and there will be some effect on Chinese RMB AS well.
