We Love Conspiracies – China Peg Going, Going, Gone

What is life without the conspiracy theories ?

Well, here is one for the road and MAY DAY !

We know that China is aiming for IMF SDR status.

“….. the Chinese yuan prepares to join the IMF SDR (Special Drawing Rights) basket later this year. http://in.reuters.com/article/2015/04/08/china-imf-sdr-idINKBN0MZ07N20150408” https://tradehaven.net/market/china-in-focus-the-monkey-god/

The rumour is that the HKD peg may be going soon, as early as in the next couple of weeks.

There is no cause for that rumour because it has been circulating for a long, long time. But the timing is good, if not perfect, now.

Why ?

After HKD goes, then the CNY perhaps ?

China stocks at record highs since the crisis. We need the next leg up.

“The MSCI World Index is an important benchmark – it covers approximately 85% of the free float-adjusted market capitalization in each country in the index. In a sense the aim is to look the investible universe. The US makes up 50.12% of the MSCI All Countries World Index as at 31 March 2015. If you were to look at the latest fact sheet from the iShares MSCI ACWI ETF country weights, China is only 2.7%. ” https://tradehaven.net/market/zicos-equity-thoughts-does-china-matter/

The reason to balk at CNY joining the SDR basket has always been the PEG ! (That is incidentally why the AAA rated Singapore Dollar is grouped under EM currency indices as well, because of its non-internationalised status.)

Removing the peg would shift China out of the EM basket that global fund managers adhere to which accounts for the 2.7% allocation mentioned above.

Once the HKD peg goes, the world will sit up, start watching China and plan for their next move.

Wouldn’t this give those retail speculators the best gift of all ?

Forcing the West to buy Chinese stocks at their highs ?

** Note a reallocation to China would come at the expense of the rest of the developed markets.