The Unfair Upper Hand Of The Chinese Yuan
The Chinese yuan and their 6 rate cuts this year including 1 devaluation is still errr, the 5th best performing currency in the world of trade-able currencies this year against the mighty USD and we saw the biggest 1 day gain since July 2005 on 30 Oct just 10 weeks after the investor freak-out session in August where many an investor pulled the plugs on their double bleeding yuan deposits, bonds and Chinese stocks.
The USD is no threat to China who has the unfair advantage of its impending inclusion into the IMF’s SDR basket.
While it is a sure thing as it will be with just a matter of timing, the SDR inclusion has little implication for the common investor on the street given that the SDR is the ball in the central bank ballpark, an instrument available to only the central bankers. The big fish for us all would be the inclusion of China into MSCI indices and all those global bond indices as a big boy and no longer tossed around as a lowly emerging market weighting.
Because if we just look at those trade weights, the fall out would be on the rest of the world just as we witness a change in the ECB’s recent revision of their latest basket of trade weights they use to calculate the effective exchange rate of the EUR.
The hardest hits were UK, US and Japan as far as EUR is concerned and as far as Europe is concerned, China is their more important trading partner at 17.7%.