More on the Chinese Yuan

More on the Chinese Yuan

An article yesterday titled '6 Reasons Stocks Will Rise From China's Yuan Move' says (1) China holds the keys to confidence; (2) China will become a big spender; (3) it won't be U.S. Consumers, but Chinese Consumers, who will lead the world out of its current economic difficulty (or 'sort of' says this); (4) China's trade surpluses will become balanced as a result of Yuan strengthening (or 'implies' this); (5) a strengthening Yuan will mitigate against inflation in China; and, (6) as a result of the timing of the Chinese currency announcement (three days ago) China has forestalled arguments over currency exchange at this week's G-20 Conference in Toronto.

While I agree to some degree with the author's first and sixth points, I disagree with all these others in the short-term and don't see them having a material influence on the world's current economic problems for many years hence.  I commented on this article as follows:

I think any immediate reaction by the equity markets, positive or negative, to China's announcement ought to be taken with a grain of salt by investors - although perhaps not by traders. For investors the key has to be the long-term consequences, not immediate equity markets reactions. If China's currency announcement proves to be significant in a world economic context it will be because it benefits China. It won't solve the debt overburden problems of the developed countries - including the U.S. - in either the short or long term. Hence from my perspective I have serious doubts a 'developed countries equity markets panacea' is in the cards from this event viewed in isolation.

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