From Macquarie Group‘s Michael Kurtz in Hong Kong the hot news about the Renminbi, which was first reported to the world late Friday night in a scoop from Reuters:
The People’s Bank of China announced that it would “further reform the RMB exchange rate regime and enhance RMB exchange rate flexibility.” But it did not implement any stepwise revaluation or technical widening of the RMB’s +/- 0.5% daily trading band against its reference basket of currencies, or offer guidance on the likely degree of appreciation.
The move – while small – [is] directionally positive for Chinese and regional equities, as it could 1) reduce trans-Pacific trade frictions; 2) usher [in] key structural reforms at the micro and macro levels; 3) enhance China’s overseas purchasing power; 4) boost regional FX; and 5) give China additional policy flexibility to deal with any future inflation pickup.
As we noted in April “the static impact of such a move may be underwhelming”. Our economics team expects only a shallow 3.5% upward crawl to RMB6.6/US$ by end-2010, followed by a 4.8% gain in 2011 to end next year at RMB6.3/US$ – just slightly faster than current NDF market assumptions.
As we flagged [earlier] “the more substantial benefit for stocks arguably comes from the dramatic reduction of US-China trade protectionism risks that a RMB accommodation will enable.”
My own view is that the Chinese willingness to drop a fixed exchange rate (which had been in place since July 2008) is less important for the country than the spate of labor unrest, strikes, and company concessions now sweeping eastern Chinese factory floors. I asked Paul Renaud in Thailand to give us an update on how the Thai stock market will be affected by the Chinese gentle rise in currency and the less gentle rise of labor militancy. The latter trend will not be stoppable just because the Beijing govt calls itself communist. When workers at a plant have won higher wages or other concessions with a strike it inspires others down the road in Shenzhen or Guangzhou or Tianshin to copy this tactic. Other notes from Paul about specific Thai stocks and from me on how to play the RMB revaluation odss are published for paid subscribers below.
The latest ipo of a China share, Xinjiang Goldwind, was withdrawn in Hong Kong because of lack of interest. This can actually help Chinese stocks because the press of new issues holds back the price of existing shares. But in a rumor-driven immature market like China’s predicting anything is high risk.
Another ipo is being planned by Santander, a Spanish bank, for its British bank holdings (starting with Abbey National.) It has already done the spinoff routine all over Latin America to raise cash for further expansion while maintaining control over the banks it has acquired. If I were sure the tactic works I would recommend STF common stock. But for now I don’t.
News for paid subscribers from Switzerland, Israel, Britain, France, Finland, and Thailand follows. We start with a single best idea from Canada. And other articles about CEFs, closed-end funds.
CEFs as I keep telling people, are like picking money up off the street. The joke tells about two economists walking along and spotting a $1000 bill on the pavement. “There is no reason to bend down,” the first economist says to the second. “If it was really there someone would have picked it up already.” But in fact, boys and girls, markets are not efficient the way classical economics preaches.
