How to cash in on the float of the renminbi

Investors who want to profit from the potential for an appreciating renminbi have several options: they could bet on the currency markets, buy British stocks that stand to benefit or invest in funds that aim to exploit the long-term trend.

Currency

You could simply buy Chinese currency and hold it in the hope that it will appreciate. You can buy renminbi in HSBC branches or online. On Friday, the bank was quoting an exchange rate of 12.99 to the pound.

Another way of speculating on currency movements is by spread betting. While the big spread-betting companies do not offer bets on the renminbi, you could always gamble on other currences that are expected to be affected by the revaluation, such as the Japanese yen or US dollar.

Many analysts expected the revaluation to usher in a period of dollar weakness. China spent £1 billion a day in May and June to maintain its dollar peg, but its appetite for US assets may now wane.

Robert Lind, an equity analyst at ABN Amro, said: “The Chinese revaluation could herald a new wave of sustained dollar weakness. The breaking of the dollar peg could signal a shift in appetite for US assets and intensify downward pressure on the dollar.”

However, the dollar has so far remained relatively stable.

John Hatherly of M&G, the fund manager, said: “Investors are focusing on the fact that US interest rates are heading up, which is supporting the dollar, rather than the revaluation.”

While the dollar is expected to weaken, the yen could be one of the main beneficiaries of a renminbi revaluation, according to Merrill Lynch, the investment bank. The Chinese may now buy more yen and fewer dollars to support their new currency regime.

On Friday, Cantor Index was quoting a spread of 111.77 to 111.86 yen to the dollar in September. If you think the dollar will weaken against the yen, you could sell at £10 for every point below 111.77. If the dollar subsequently fell to 111 yen, you would win £770 — £10 times 77 points. However, remember you can lose more than your original stake when spread-betting.

This entry was posted on Tuesday, August 2nd, 2005 at 9:55 pm and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.