Monday, March 8, 2010

Roubini: China to Revalue Yuan by 4%, "Super Cautious" on Economy, Yuan ETFs

On February 26 we posted an article on how to profit from the possible upcoming revaluation of the Yuan. Yesterday Nouriel Roubini stated that the Yuan revaluation could reach 4% because China is still very cautious about the world's economy.

Here is the updated chart on CYB, one of the two Chinese currency ETFs we cover in our tracking live site.

According to the Business Week article, China will limit the yuan’s appreciation because of its super cautious” outlook on the global economy.

"The central bank may end a 20-month peg to the dollar as soon as the second quarter, allowing a 2 percent one-step gain, and then let the currency strengthen another 1 percent to 2 percent in 12 months".

"The yuan rose 21 percent between July 2005 and July 2008, when the government halted its advance to protect exports".

Roubini’s forecast is less aggressive than the median estimate in a Bloomberg survey of 20 analysts for the yuan to rise 5 percent to 6.50 per dollar by March 31, 2011. Chinese central bank Governor Zhou Xiaochuan said March 6 the nation should be “very cautious” in exiting policies adopted during the global financial crisis, including the exchange-rate link.

Roubini added that “It will be less than what they did in 2005 when everything was going right,” “They will move by a token amount. The world is much cloudier in every dimension. They are super cautious.”

“A bit of move in the currency might help,”

“If they move it by 2-3 percent, it won’t make a huge difference to inflation pressure. They are always cautious and won’t bow to the pressure from the U.S.”

Roubini was quotes further saying that “Most people are concerned about inflation, I am worried about the export-led growth model,” “A weak currency and low interest rate is a massive transfer of wealth from household income to enterprises. It will take more than three, five years to change China’s model of growth.”

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1 comment:

rebecca said...


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