Jim Rogers Bullish on Yuan
Jim Rogers believes you should look to the East.

This Article Originally was Published here: http://www.wealthdaily.com/articles/jim-rogers-bullish-on-yuan/4380

Should you be looking to the East? Specifically, China? According to Jim Rogers of Quantum Fund fame, the Chinese renminbi could appreciate as much as 500 percent over the next three decades or so.

In fact, the IB Times reports that Rogers went as far as to suggest that the renminbi might become the new currency of reserve within our lifetimes. That is some rather radical thinking; let’s take a look at why Mr. Rogers might feel that way.

Last Friday, the yuan (what the RMB is spoken of in the vernacular) shot up to its highest point ever against the U.S. dollar. Interestingly, this occurred just ahead of much-anticipated talks between China’s President Xi JinPing and U.S. President Barack Obama. The yuan has been appreciating steadily, in response to numerous forces—the major drivers being spreading urbanization and industrialization across China, which inevitably causes inflation, and careful management by the Chinese government. Indeed, the South China Morning Post reports that speculation is rising that the yuan could be allowed to break through the 6-to-the-dollar threshold, which is seen as a major milestone.

China has, of course, been accused of manipulating its currency, thus artificially retaining competitive labor advantage. This has led to much international commentary, and just last week eight senators urged that a bill be reintroduced which would mean heavy tariffs upon China (from the U.S.) should suspicion about artificial manipulation grow.

Thus far in 2013, however, the spot yuan is up by 1.6 percent overall (in other words, it’s up almost 35 percent versus the U.S. dollar). This comes after the yuan underwent closely-monitored revaluation back in 2005. Little wonder, then, that Jim Rogers made such hyperbolic statements.

Note, further, that the Australian dollar—primarily supported by commodities—and the South African rand have both experienced abrupt, and significant, declines. Given that the People’s Bank of China strictly controls the yuan’s fluctuations (it may only vary up to 1 percent beyond or below the central parity rate, which for now is at 6.162 against the dollar), the picture revealed becomes one of low volatility with expectations of steady appreciation. Around the world, we’ve seen investors flinch from high-risk investments, moving increasingly toward low-volatility, risk-averse investments. In such a climate, the yuan becomes a wonderfully timed choice.

The Yuan’s Transformation

The yuan has undergone a remarkable, if quiet, remaking. During President Obama’s total time in the White House, it has gained more than 10 percent. Where the U.S. once adopted rhetoric against China decrying U.S. exports and jobs damage due to the artificially-suppressed yuan, we’re now seeing a healthy reciprocation where the yuan is allowed to rise steadily over time. And China is beginning to flex its financial muscle.

Bloomberg reports that Shuanghui International Holdings Ltd. recently bid for Smithfield Foods Inc. (NYSE: SFD) in a deal estimated at around $7.1 billion. That would make it the biggest Chinese acquisition of an American company ever—which is something D.C. is definitely observing. Allowing for a bit of exaggeration, Bloomberg even sketches the specter of Wal-Mart—that all-American icon—being brought under Chinese ownership.

With manufacturing losing its luster within China, the nation is swiftly diversifying. The flip side of an appreciating yuan is greater Chinese purchasing power. Indeed, in the case of Smithfield, the company is now as much as five times cheaper for China to buy out than it would have been just half a decade ago.

All these factors taken together indicate a dynamic, if occasionally troublesome, future for the yuan. Rogers is right in foreseeing a sustained rise for the yuan. If you’re in the mood for a remarkably safe investment in these turbulent times, you could find the yuan a highly congenial option. It offers stability, a high guarantee of appreciation (albeit over a fairly long period), and it’ll let you stay on top of what is rapidly shaping up to be one of the fundamental economic shifts of our era.

Take Australia’s example. Back in April, the country’s government decided to invest 5 percent of its foreign reserve (that would be a pile of A$38.2 billion) into Chinese government bonds. Japan and Nigeria, too, have significant investments in Chinese government bonds. Clearly, a lot of people are eyeing the yuan with speculation in their mind.

This Article Originally was Published here: http://www.wealthdaily.com/articles/jim-rogers-bullish-on-yuan/4380



Jim Rogers Bullish on Yuan originally appeared in Wealth Daily. Wealth Daily, a free daily newsletter, offers practical investment analysis and contrarian stock market advice.
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