Contrary to 2010, this year might feature a slowing Chinese economy and re-rating stock markets, thanks to improved policy visibility, peaking out inflation and still relatively strong earnings growth . . . and even a strong yuan.
The Chinese currency is moving to a 17-year high in spite of all the cries from Congress and not because of them. The fact is, Beijing really has no choice here.
Anything the Chinese government does to fight local inflation will have the side effect of boosting the global buying power of the yuan. This, in turn, will give commodity prices added strength because suddenly Chinese consumers will have more buying power in the global market — ultimately, this will be a disposable income boost for the Asian consumer.
And it will be good for funds like CYB that purport to trade the yuan :
The yuan is up 3.6% since September. Wen Jiabao is going after lending but can now claim he is letting market forces shape the moves in the currency without hurting the consumer. Remember, this is not a credit-obsessed economy, so most consumer activity still takes place in cash.
Some easy trades in this environment:
HTHT – China Lodging runs a franchise-and-manage hotel model in major cities.
CTRP – ChinaTrip is seeing local travel grow at a rate of 9% a year and revenue soar 49%. Its full 2010 results are due in three weeks.
ACH – Chinalco, one of the leading yuan-denominated miners. As Beijing focuses on saving energy, smaller aluminum producers will likely get squeezed out, leaving ACH with a much better competitive proposition.
EDU – indicated up 4% pre-market. The company specializes in online testing and prep classes.