Currency speculators consider the
options beyond China
Published: August 5 2005 03:00 | Last updated: August 5 2005 03:00
Fund managers and
currency traders had been betting for years that China would revalue its
currency. The unexpectedly early - but relatively small - revaluation
finally allowed some of them to take a small profit.
But it has left many investors
scratching their heads about how to make money on the next move. Some
have decided not to bet on China's next move at all, while others have
become more creative in their investment strategies, with theories that
go against market consensus.
When Beijing acted two
weeks ago, most financial markets moved in the direction
The dollar fell against some major
currencies, particularly the yen. Chinese equities on the US exchanges
jumped around 2 per cent as the market recognised that Chinese
companies' assets would be worth more in dollar terms. And not
surprisingly, peripheral Asian equity and currency markets gained.
But things have since settled,
with most of the markets moving back to near their pre-revaluation
levels. Those hoping to make gains from the immediate effects of the
revaluation are "going to be disappointed" according to Jim Melcher,
head of Balestra Capital, a New York hedge fund.
"This small upward revaluation is
almost worse than no revaluation at all,"he says.
Based on that view, some fund
managers have thrown in the towel, thinking China's next policy change -
if there is one - will be similarly modest.
"I didn't want to invest in the
renminbi six years ago and I don't want to touch it now," says Mr
Jes Black, manager of Black Fund
Capital Markets, takes a different view. First, in common with other
investors, he expects other Asian currencies to rise if the renminbi is
"The revaluation signifies a
change to a fourth currency option, and just adds to the idea that
investing in Asian currencies is becoming a more solid investment," he
says. The three other options are US dollar, European currencies, and
emerging markets plays.
Mr Black is also looking at some
strong Asian equity plays, such as investing in South Korean stocks. The
market's main index, which started to rise a few weeks before the
revaluation, rallied above the key 1,000 level last week, and hit 1,100
In yet another theory, he is
betting that the dollar will rise against the euro, a view that goes
against most of the market.
Black believes that, over time, investors will gradually buy more Asian
currencies at the expense of European currencies such as the euro
and sterling rather than the dollar, suggesting European
currencies could weaken against the greenback.
Benson, founder of the Specialty Finance Group, agrees that the
revaluation is a step towards a more mature Chinese economy.
He has a different theory on how
investors could make some real money on further currency moves - by
investing in the businesses Chinese companies might want to buy.
"There are already signs that
China is trying to buy US brands, US oil companies, and almost
anything that isn't nailed down around the world," he says.
He adds that owners of shares
in companies that become takeover targets for Chinese companies should
make money: "As an investor, shouldn't you be interested in what China
wants to buy?"