China's Currency Not Dying, Deutsche Bank Says

May 17 2014, 12:34pm CDT | by

The Chinese yuan is second only to the Russian ruble as the worst performing BRIC currency compared to the dollar.  It’s down nearly 3% to the greenback this  year, while the Brazilian real is up 6.3% and the Indian rupee is up 5.4%.  Even the Mexican peso is doing better, up 1.12% against the dollar.  Yet, some pundits will have investors believing that the weaker yuan signals the ongoing decline of the Chinese economy.  For them, the yuan’s days of strengthening are over as Beijing opts for a weaker currency to keep cheap exports flowing Westward.

Not so fast, says Deutsche Bank in China.  This currency is not dead yet. In fact, its just beginning to flex its muscles.

Deutsche Bank recently opened its seventh location in China, this one in the new Shanghai Free Trade Zone. Their executives say that demand for the Chinese currency, the yuan, among their corporate clients is growing. In Shanghai, the bank focuses on yuan-denominated cross-border transactions and services ranging from yuan cash pooling and trade financing to cross-border lending and interest rate hedging.

“Surely but slowly global use of the yuan will rise as China gradually makes the currency fully convertible in both trade and investment,” Lee Beng-Hong, head of markets at Deutsche Bank China, told China Daily in an interview published Saturday. “That spells huge opportunities for global banks like us.”

Lee said the yuan’s recent weakening against the dollar hasn’t changed investor sentiment for the longer term trend in the Chinese currency. “Corporations have real demands to use the yuan as one of their payment currencies,” Lee told the Daily. “The demand, supported by China’s steady economic growth, far outweighs the exit of some speculators.”

The yuan is up around 20% against the dollar since 2005. It weakened significantly in 2008 during the financial crisis and again this year amid a slowdown in the Chinese economy. The yuan is not a free-floating currency, but many fixed income fund managers believe the trend is for the yuan to strengthen as the Chinese economy grows.

Edmumd Harriss, a fund manager at the Guinness Atkinson Renmimbi Yuan & Bond Fund, has told FORBES in previous interviews that the yuan is a relatively stable way for investors to diversify away from the dollar.

“You can invest in bank CDs, and corporate bonds. The market is still a bit thin, but we expect that to change over time,” he said. “The long term trend is for the yuan to get stronger, not weaker, as more companies throughout Asia use it in financial transactions. We are seeing that now. It’s no longer a matter of if anymore. The yuan is being used as a trade currency now, slowly but surely,” he said.

Much of the yuan is dependent on China growth. And China is not growing as much as it used to.

The deceleration of China’s economy may even continue during the current quarter, Barclays Capital economist Jian Chang said last week in a note to clients, but an uptick in some leading indicators point to improvement in the months ahead.

Over the last three months, China has been massively lagging the MSCI Emerging Markets Index. The iShares FTSE China (FXI) exchange traded fund is up only 0.5% while the MSCI EM is up 8.26% in the last three months. Year to date, FXI is down more than 6% while the benchmark MSCI EM is up 2.7%.


Flash Player 9 or higher is required to view the chart
Click here to download Flash Player now
 
 

Don't miss ...

 

<a href="/latest_stories/all/all/30" rel="author">Forbes</a>
Forbes is among the most trusted resources for the world's business and investment leaders, providing them the uncompromising commentary, concise analysis, relevant tools and real-time reporting they need to succeed at work, profit from investing and have fun with the rewards of winning.

 

blog comments powered by Disqus

Latest stories

Finnish scientists identify new type of black hole
Helsinki, Oct 31 (IANS) Finnish researchers have discovered a new type of low-mass black hole, which is a bright celestial body that emits X-ray, the University of Turku has said.
 
 
Union Carbide ex-chief Warren Anderson is dead
Washington, Oct 31 (IANS) Warren Anderson, former chief executive officer of the Union Carbide Corporation, is dead, a media report said Friday. He was 92.
 
 
Himalayan Viagra fuels gold rush for local Tibetans
Washington, Oct 31 (IANS) Overwhelmed by people trying to find the prized medicinal fungus known as Himalayan Viagra, two isolated Tibetan communities have managed to implement a successful system for the sustainable harvest of the precious natural resource, suggests research.
 
 
Oceans were always there on Earth: Scientists
Washington, Oct 31 (IANS) Debunking previous theories that water came late to Earth well after the planet had formed, researchers have significantly moved back the clock for the first evidence of water on Earth and in the inner solar system.
 
 
 

Latest from the Network

Julia Stiles and Ray Liotta cast in Go With Me
Julia Stiles and Ray Liotta have been added to the cast of Anthony Hopkins' new film 'Go With Me'. The action-drama, which will begin shooting in mid-November, tells the story of a young woman who returns to her home...
Read more on Movie Balla
 
Seth Rogen to star in Steve Jobs biopic
Seth Rogen is in talks to star in Sony's Steve Jobs biopic. The 'Bad Neighbours' star is in negotiations with the studio to take on the role of Apple co-founder Steve Wozniak - who created the Apple I computer and co-...
Read more on Movie Balla
 
Jennifer Lopez has struggled to love herself
Jennifer Lopez say she's spent much of her life beating herself up for not being good enough. The 'Dance Again' hitmaker, who has six-year-old twins Max and Emme with her third ex-husband, Marc Anthony, puts a lot of...
Read more on Celebrity Balla
 
Julianne Hough's teary tribute to sister
Julianne Hough broke down in tears while praising her older sister. The 26-year-old singer/songwriter made an emotional speech in which she praised her older sister, Sharee Wise, admitting her sibling inspired her to...
Read more on Celebrity Balla
 
Tom Parker vows to look after Lindsay Lohan
Tom Parker has vowed to look after Lindsay Lohan. The former Wanted star is keeping a watchful eye over the 28-year-old actress as she performs in play 'Speed-the-Plow' in London because he wants to help the flame-...
Read more on Celebrity Balla
 
Kaley Cuoco-Sweeting fell for husband over animals
Kaley Cuoco-Sweeting knew her husband was 'The One' because he loves animals. The 'Big Bang Theory' star, who married tennis player Ryan Sweeting in December after just six months of dating, admits she fell in love with...
Read more on Celebrity Balla
 
Orson Welles last film to be released
Orson Welles' final movie will finally be released next year. The acclaimed filmmaker had worked on 'The Other Side of the Wind' - which chronicles a temperamental film director battling with the Hollywood establishment...
Read more on Movie Balla
 
Game of Thrones stars get pay rise
'Games of Thrones' cast members will be paid $300,000 an episode. Five of the shows biggest stars - Peter Dinklage, Kit Harington, Lena Headey, Emilia Clarke and Nikolaj Coster-Waldau - have landed bumper payrises after...
Read more on Celebrity Balla
 
Mike Tyson: I was abused
Mike Tyson claims he was sexually abused as a child. The 48-year-old retired boxer was ''snatched'' off the street when he was seven by an ''old man'', who he never saw again after the shocking one-time incident....
Read more on Celebrity Balla
 
Amanda Bynes released from psychiatric facility
Amanda Bynes has been released from a psychiatric treatment facility. The 'Easy A' actress was spotted walking around Sunset Strip, West Hollywood, last night (30.10.14), 19 days after she was admitted to the hospital...
Read more on Celebrity Balla