You Can’t Fight the Yuan
That’s about where we are today with the Yuan.
From very humble beginnings, China’s quietly built up more than 18 swap agreements. In fact, HSBC (NYSE:HBC) forecast (in 2010) at least half of all trade with emerging markets could be settled in Yuan by 2013- 2015, which would be up from only 3% in 2010.
HSBC also sees nearly $2 trillion worth of trade flows that could be settled in Yuan annually, which would make it one of the top three global trading currencies and one that is totally outside of existing currency trading pairs.
Formerly just the domain of fringe players in small emerging markets, now Australia, Russia, Brazil, India, South Korea and South Korea all have some sort of bi-lateral agreements in place with the Yuan – and both Germany and England are now contemplating joining the party in earnest.
Ultimately, the United States will too, but they better get a move on it in Washington.
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.
Only this one has been built from the ground up entirely by design. This is not by accident. China picked London because it’s served as a financial hub for centuries. It’s also payback for Hong Kong and the opium wars.
At the end of the day, you can fight this all you want.
But understand the Yuan has only just begun to grow – as an exchange mechanism, as a cultural influence, and as a trading tour de force.
The way I see things, the Dragon is coming to lunch in two years’ time. The only decision you have to make is whether you want to be at the table or on the menu.
How to Capitalize on Chaos
Individual investors can make the Yuan a part of their investing future in several ways:
1) Invest in the “glocals” I talk about so frequently. These are companies like General Electric (NYSE:GE), ABB Ltd (NYSE:ABB) and McDonald’s (NYSE:MCD) with global brands and a highly localized presence. They typically have fortress-like balance sheets, experienced management and, most importantly, huge percentages of their revenues coming from global markets growing at 3-5 times the speed of our own. 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 (NYSE:CYB). At a time when Washington has been busy trying to convince the public that China’s Yuan is being held down artificially, it’s actually appreciated by 24.66% against the U.S. dollar since June 2005. I think it will rise significantly when the Chinese ultimately unblock it because of the pent-up demand being fostered now…when nobody’s looking.
3) Open an EverBank Chinese Renminbi World Currency Access Deposit account. It’s IRA eligible, FDIC insured, there are no monthly account fees – and you can open an account for as little as $10,000.
4) Open a deposit account directly with the Bank of China (PINK:BACHY) which began offering Yuan-based deposits, exchange remittance, and trade financing a few years back. Transactions are limited to a few thousand dollars at a time and you have to visit the branch in person in Los Angeles or New York to get started. Savings accounts require a balance of $5,000, but demand-based deposit accounts carry a $3,000 minimum.
Here’s one last thing to consider…
Every time we’ve seen a major revolution – The Age of Navigation, The Industrial Age, the Computing Age – the world has entered into a new golden age of investing. Just as we will when the Age of Deleveraging grinds to a halt.
All the right drivers are there… they just happen to be on somebody else’s roads this time around.