China revaluation

Discussion in 'Economics' started by illiquid, Oct 9, 2003.

  1. What would happen to Chinese internet names if the yuan were to be revalued? Hearing that this may be a method of slowing down an overheated economy there.
  2. Using a currency revaluation alone is very hard to slow down an economy *unless* it's coupled with changes in tax laws and import/export duties.

    Without knowing those other changes one cannot make an informed judgment.
  3. I would assume the financials of China's internet firms, both debt and revenues/profits, are denominated in RMB thus profitability will not be impacted by revaluation. However, USD denominated shares listed overseas should appreciated, i.e. cost more in USD, because it will take more USD to buy the same RMB assets, assuming the RMB appreciates. That is my guess anyway.
  4. Business week and a couple of the other financial mags have commented on this at length the past 6 months or so. You might do a search on forbes, fortune, or, I remember one article had a fund manager saying the main reason he was buying ntes and sohu had to do with the eventual revaluation thing.
  5. A stronger local currency makes a country's exports more expensive - this can have a major impact on an export-dependent economy like China. China is even more dependent because it needs excessive economic growth to absorb workers who by the millions are losing jobs in state owned or sponsored enterprises. Thus, if a poorly executed appreciation of the RMB takes place, impacts exports and leaves millions of workers out of jobs, China could easily descend into chaos. It has happened many, many times in history.
  6. The profit will go up in dollar terms at the same % rate as the Chinese currency's rally.

    It is the same as a US multinational's foreign branches. If Gillette's EU operations are making 500 million Euros profit, at a Euro exchange rate of 1.00, and then the Euro rallies to 1.20, then the dollar P&L of the EU branch increases by a similar 20% amount, to 600 million.

    If and when this happens, there is a possibility of a strong "buy the rumour, sell the news" reaction in the Chinese internet stocks, especially if the revaluation is widely anticipated. No doubt there will be an initial surge of buyers, however.
  7. It is a good strategy for a fund manager, or trader for that matter, who is restricted to investing in listed equities but wants some exposure to a strong Yuan.
  8. Also, from a US perspective, it will make our imports more expensive so things that are produced over in China (i.e., semiconductor chips, toys, etc.) will be more expensive for US residents.