Results 1 to 2 of 2

Thread: Yuan carry trade?

  1. #1
    Featured Member
    Joined
    Nov 2006
    Posts
    950
    Thanks
    1
    Thanked 651 Times in 272 Posts

    Default Yuan carry trade?

    http://www.dailymarkets.com/forex/20...e-us-recovery/

    "By announcing the launch of a new market for dollar-denominated bonds that are issued by non-financial firms, China has now taken a major step toward modernizing its capital markets. The move hasn’t made much of a splash here in the United States. But I was in China, heading my annual investment tour of that country, when the announcement was made. And believe me when I tell you that China’s company executives, investors and government officials fully understand the implications of what’s just been done.

    The move is very shrewd, for it brings about the confluence of highly complimentary trends.
    For China-based companies that want to invest abroad, or that want to buy foreign companies, product lines, or other assets, these new dollar-denominated bonds will make it possible to do these deals more easily, and at a much lower cost.
    Beijing had already launched an official campaign that urges “Corporate China” to acquire overseas companies and assets. But there had to be a liberalization of the financial system for this to happen. So back in August, in fact, for the first time in 11 years, China’s government eased rules governing its foreign-exchange systems.
    These new regulations permit companies to retain foreign-exchange income offshore, if they want, and thus helped pave the way for the new bond market because it stokes potential demand for dollar-denominated investments.
    And that comes at a perfect time for - up until now - the ongoing global financial crisis, which has made Chinese investors wary of buying foreign-currency bonds that were issued outside China. But these dollar-denominated bonds will be created inside China, effectively short-circuiting that worry.

    Given what we know about China’s global natural-resource-acquisition ambitions, the first entrants into this new market will likely be one or more of China’s huge natural-resource concerns that are presently scouring the globe, creating captive supplies of the very commodities that will be necessary to ensure China’s future growth. My experience here suggests that high-tech and infrastructure companies will follow almost immediately. Many of those firms may head straight for Taiwan, thanks to newly inked agreements that make it easier for Mainland China companies to invest across the Taiwan Straits for the first time in decades. After that, these firms will direct their appetites for acquisitions elsewhere around the world.

    Just how big could this new dollar-denominated financing market turn out to be?

    At a time when Western debt markets remain mired in muck, it’s too soon to tell for certain. But Bank of China Ltd. analyst Shi Lei estimates that non-financial Chinese firms may issue as much as $30 billion during the next two quarters alone."

  2. #2
    Banned Melonie's Avatar
    Joined
    Jul 2002
    Location
    way south of the border
    Posts
    25,932
    Thanks
    612
    Thanked 10,563 Times in 4,646 Posts
    Blog Entries
    3
    My Mood
    Cynical

    Default Re: Yuan carry trade?

    This is a sword with at least 3 edges ... and all of them are ultimately pointed at the USA.

    1 - while creating an additional $30 billion in foreign US dollar demand will slow the momentum of a US dollar crash, it's really only a 'drop in the bucket'

    2 - China is obviously constructing a mechanism by which they can exchange their mountain of surplus US trade dollars for REAL GOODS in short order ... which is obviously a hedge against the coming US dollar crash, but will also create even more upward price pressure for commodities etc.

    3 - China may wind up being the 'buyer of last resort' for troubled US banks and corporations, which given a US gov't 'takeover' (either FDIC or TARP / bailout) as an intermediate step amounts to the US gov't selling off formerly private US assets as a means of reducing its budget deficit !

Similar Threads

  1. Replies: 1
    Last Post: 09-30-2010, 01:39 PM
  2. Replies: 0
    Last Post: 11-07-2009, 01:28 AM
  3. Now licenced to carry....
    By Sinder in forum The Lounge
    Replies: 7
    Last Post: 11-27-2007, 07:49 AM
  4. weekend commentary - the Yen 'carry trade'
    By Melonie in forum Dollar Den
    Replies: 0
    Last Post: 02-11-2007, 07:37 AM
  5. What Do You Use To Carry Your Stuff?
    By sol_de_pr2 in forum Customer Conversation
    Replies: 25
    Last Post: 01-12-2005, 06:32 PM

Bookmarks

Posting Permissions

  • You may not post new threads
  • You may not post replies
  • You may not post attachments
  • You may not edit your posts
  •