Sven Subotič (Best Buy Investments, a.s.)
Currencies  |  September 14, 2012 11:35:05

How strong will the yuan?

China's economic growth attracts investors to bet on yuan appreciation. Cheap emission attract many investors.

Investors buy up securities issue by speculating on appreciation of the Chinese currency. China has become the second largest economy in the world and despite the centrally controlled monetary policy, which artificially keeps its currency undervalued, strengthened the yuan against the dollar by 23 percent since 2005.Some economists even talking about the potential of the yuan to become the next reserve currency.

Currently, banks to design products at very cheap yuan due to two factors. Firstly, the volatility of exchange fell by more than 40 percent to the current 4.1. It's the Chinese policy, which seeks a stable currency that protect growth in a time of crisis the EU. Second, the European debt crisis has just signed to increase the interest rate differences, which has resulted in the investment-oriented products are cheaper yuan.

These conditions come lately more and more banks in new issues, Barclays, Goldman Sachs, Morgan Stanley and Credit Agricole has signed up several hundred million dollars in emissions, which provide capital protection while earning their appreciation of the Chinese yuan. Investors still generally expect more growth in China, but also fear of possible scenarios fall after a quick takeoff, therefore prefer better capital protection combined with the additional option to obtain excessive revenues from the appreciation of the Chinese currency.

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