China's Inscrutable Currency Strategy

Purpose: Expose Opportunities for Smart Investors

The move of the Central Bank of China, the yuan to the dollar drop-rigid rod on my back, after three weeks of travel in Asia has a number of open questions. to determine the basket of currencies, the alleged value of the yuan would continue was not disclosed. What kind of currency can fluctuate within the band is not clear. The 2% appreciation in the currency on Thursday followed by astrengthening slightly underestimated the Friday week may actually further speculation in the short term because most economists believe the yuan by about 10% to 20%. Commerce with $ 1000000000000 a year and hot money capital inflows equivalent to 5% of GDP, the uncertainty about the Chinese currency is high.

Not on the mainland

In the near future, this uncertainty gives investors the opportunity not only to benefit from the expected strengthening ofChinese currency, but the overall rise of Asian currencies against the dollar. In early 2005, I advised clients that the euro rises against the dollar was over and that Asian currencies would be the area close to the value against the dollar will be. It may happen that many of the best investment options in China does not require investments in companies from mainland China in general.

Currency direct approach

The game cleaner directly evaluating the expected rise of the yuan (also known asthe renminbi) is a renminbi currency account at Everbank open. A leading center of banking online "Best of the Web" by Forbes, offers a variety of world currency accounts as Everbank backed FDIC three and six months supply CDs, attractive prices.

Direct approach Ishara

Another game of capital into China is through Ishara China (FXI) that tracks the FTSE / Xianhua China 25 Index, comprising 25 of the largest and most liquid Chinese name. FTSE is a UKIndex company, is a media company Xianhua and China.

All the 25 shares of Ishar China are included, listed on Hong Kong. Some of them are in China (H shares) are taken and some of them are incorporated in Hong Kong (red chips). The total market capitalization of the index is 170 billion dollars. The broadest Xinhua China index includes 1,355 listed companies with a market capitalization of 550 billion U.S. dollars.

For this perspective, the average market priceCapitalization of a company in the S & P Global 100 Index is $ 70,000,000,000. This is too much for a company. China Ishara provides good exposure to three key sectors of China: energy (20%), Telcom (19%) and industry (18%). This concentration can be considered more or less depending on your perspective. For example, some smart investors are betting China's largest consumer markets. The five largest companies account for 40% of the index. The annual operating costs in ChinaIshara are only 0.74% compared with 2% more than other alternatives, but also actively managed funds in Asia and Greater China. Remember that most of these companies are still largely controlled and owned by the Chinese government.

Indirect approach

The best way to be able to invest in China through more indirect vehicles that benefit from the growth of China and its currency moves. An example of an indirect investment in China by Ishara Hong Kong (EWH). Ithas obtained a wealth of real Hong Kong (33%), utilities (17%) and banks (16%). Returning from a trip to Hong Kong, it seems clear that the housing markets, so to go before it is too expensive. The offer is inflexible and even if prices rise as expected 30% during the next 18 months, prices are still about 50% below where they were in 1997. The last Asian currency tied to the dollar, capital inflows should be encouraged. Hong KongMarket has been much more successful in Shanghai and Shenzhen stock exchanges reported to be the financial capital of China for the foreseeable future.

Indirect Currency Play

China's move last week also increased the burden on a number of other undervalued Asian currencies to appreciate. To compete with China's export machine, many Asian countries are opposed to letting their currencies rise, but now they have some loophole. The Malaysian ringgitwas released from its link with the dollar last week, and rose from 0.7% the first day. While currency appreciation will somewhat slow down export growth will also expect a reduction in the cost of rising energy import costs and analysts that the economy will grow 5.5% this year. The easiest way to invest in Malaysia is through the Ishara Malaysia (EWM), a basket of leading companies of the Securities Exchange listed. Another attraction - the annual fee for Ishara Malaysia is only 70 basis points.

ThePlay the press

Malaysia is often overlooked by investors, though in silence, but progressed considerably from a relatively poor producer of raw materials to a bustling and broadly diversified middle-income countries.

Malaysia, located along the Strait of Malacca is strategically important, should be on every investors radar screen for the following reasons:
Has little external debt and healthy foreign exchange reserves. The area is slightly largerNew Mexico.
Malaysia has a balanced economy with strong industrial and services sector, important natural resources and openness to foreign investment.

It has a parliamentary system and divided powers between central government and 16 states and territories of the Federation.

Malaysia is well positioned for growth in the region with key partners and export of investment will benefit Japan, China and the United States.

Natural resources include tin, petroleum, natural gas,Wood, copper, iron ore, bauxite. Small but consistent exporter of oil and natural gas.

Has an increasingly young and well educated, with an average age of 24 and an illiteracy rate of 90%.

Malaysia's per capita income approaching $ 5,000. Solid middle-income country with a growing middle class.

The Kuala Lumpur Stock Exchange, also known as Bursa Malaysia was listed, has more than 800 companies.

Canada?

Another clever indirect China play would have investedIshara in Canada (EWC). The Chinese are investing in a shop to go to Canadian energy companies and recently threw $ 2000000000 thousand miles of pipeline oil sands in Alberta to build the port on the West Coast and Beijing and Shanghai. The Ishara Canada tracks the MSCI India Index, 40% exposure to Canada's energy and resources sector.

Starbucks?

What is play with Starbucks (SBUX) and China? Starbucks has about 9,000 stores worldwide andin the first quarter 2005 sales by 27% and revenue exceeded $ 100,000,000. And 'entry into the Chinese market in 1999 and has about 300 stores, which carried out above expectations. The company hopes to have 30,000 stores and China is an important part of the expansion strategy to expand. With 250 million Chinese approaching middle class and millions of new affluent status conscious youth, Starbucks expects that soon China will be its second largest market. During my last trip totrip to China, I visited ten Starbucks stores and all were thriving with lots of young Chinese enjoying not only coffee, but the greater the margin specialty products beverages. Think the Chinese will always prefer tea? Japan shows that income has reached some points of deposit, consumer preferences change from tea to coffee. Starbucks always looks expensive but many great companies always. Starbucks investors have made 43 times their investment in their 1992IPO and revenue by 27% in July.

China represents a huge opportunity for investors to long term, but an indirect approach may be the smartest strategy.

Next week: discover what is the next great Asian Bull Market in the 21st century suggestion - not China!

Carl Delfeld is head of global consulting firm Chartwell Partners and editor of Chartwell Advisor and the Asia Investor Intelligence newsletters. He served on the board of the Asian Development Bank andis the author of The New Global Investor (iUniverse: 2005). For more information call 877-221-1496 or go to http://www.chartwelladvisor.com