Dollar, euro and yen, move over

Your financial future will be built upon the Chinese yuan, but there are ways investors can cope with this fundamental change.

By Mar 20, 2013 5:13PM

By Keith Fitz-Gerald, Money Morning

Lately, people have been talking in angry terms about the huge piles of cash U.S. corporations hold offshore.

Most are frustrated that corporations find it more profitable and less risky to keep it there. They don't draw the connection between that cash and redirected wealth. Apple (AAPL) is the poster child, with over $137 billion in the bank—and some 70%, or $94 billion, held offshore.

What people don't realize is that huge chunks of cash are held in other currencies, chief among which is the yuan. It's so much that U,S, and foreign firms already hold four times more Chinese currency than they can invest in that country, as reported by Nick Edwards of Reuters.

It's hardly by coincidence that yuan-settled trade jumped 41.3% to nearly 3 trillion yuan in 2012...after it increased by more than 300% in 2011.

The cold, raw reality is Western demand for Chinese currency is actually fueling the yuan's rise. The perfect storm of punitive taxation, chronic debt, a morass of regulation and the uncertainty it creates is pushing money away from the United States. Meanwhile, newly punitive problems in the euro are creating a flight off the continent.

The dollar has lost more than 80% of its value since being taken off the gold standard in 1971. Our nation is $222 trillion in the hole, according to Yale Professor Laurence Kotlikoff's analysis of CBO numbers. Our national debt has skyrocketed to more than $16.652 trillion, and is increasing at something like $50,000 a second.

The euro is singing only a slightly different tune. According to the Maastricht Treaty, national public debt is not to exceed 60% of GDP for any member state. Yet, at the end of 2011, Greece, Italy, Ireland, Portugal, Belgium, France, the UK, Germany, Austria, Cyprus, Spain, and the Netherlands all had government debt greater than that, as high as 165.2%.

And Japan's in deep, too. With total combined private, corporate, and government debt near 500% of GDP, the yen is living on borrowed time.

But the yuan has risen 24.66% against the U.S. dollar since June 2005, backed in part by 1.3 billion consumers and real assets. That's because strong currencies attract capital, while weak currencies shed it.

China's quietly built up more than 18 swap agreements. In fact, HSBC forecast (in 2010) at least half of all trade with emerging markets could be settled in yuan by 2013 to 2015, which would be up from only 3% in 2010.

China's making ready to trade the yuan freely by 2015, from London of all places. That means in less than two years, the world will have another currency to contend with. But understand that the Yuan has only just begun to grow—as an exchange mechanism, as a cultural influence and as a trading tour de force.

Here are a couple of ways that individual investors can make the yuan a part of their investing future:

  1. Invest in the "glocals"—companies like General Electric (GE), ABB (ABB), and McDonalds(MCD) with global brands and a highly localized presence. They're the ones accumulating the yuan, so it only makes sense to build upon the economic power base that represents.
  2. Buy an ETF like the Wisdom Tree Dreyfus Chinese Yuan ETF (CYB).

Read more from Money Morning here...

Related Articles:

China's Latest Problem

It Really Is a Global Village

How to Play China's Rural Rise

Mar 21, 2013 9:21AM

4 times as much in Chinese currancy spells trouble for these investers and they better prop up the Euro before it becomes the same value as Lira.  1000 lira was worth about .25 back in 1977

Mar 20, 2013 11:15PM
So one ounce of gold is worth 9,600 yuan?
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
100 character limit
Are you sure you want to delete this comment?


Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.


StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

125 rated 1
267 rated 2
455 rated 3
612 rated 4
682 rated 5
695 rated 6
632 rated 7
472 rated 8
279 rated 9
147 rated 10

Top Picks

TAT&T Inc9



Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.