On Thursday, the Chinese government backed up its recent words with actions when it allowed the yuan to appreciate against the U.S. dollar at the fastest pace since China ended its peg to the U.S. dollar in mid-2005. Specifically, the Chinese yuan rose 0.37% to a new high of 7.3175 to the dollar ($0.1367), up 13% from a pegged rate of 8.28 ($0.1208) in 2005. Win Thin, the senior currency strategist at Brown Brothers Harriman, called this "a huge move," adding that it was not a "response to outside pressure, but rather to help China's domestic situation and fight inflation."
Thursday's jump in the yuan capped several sessions of previous gains that brought the yuan's monthly gain to 1.1% and its one-year rise to just under 7%. For the fourth straight quarter, the yuan has gained ground, rising 2.6% in this quarter, up sharply from 1.4% in the third quarter, 1.5% in the second quarter and 1.1% in the first quarter. Yao Jingyuan, chief economist of China's National Bureau of Statistics, made it very clear that the faster appreciation in the yuan will likely help offset inflationary pressures from a weaker dollar and rising global commodity prices. China has apparently decided to allow the yuan to appreciate at a faster pace to help solve its domestic inflation problems, especially the high cost of food. Naturally, this is great news for our China stocks, since it means that the currency tailwind behind the yuan is getting stronger.
China recently passed Israel as NASDAQ's largest source of overseas stock listings. There are now 75 Chinese stocks listed on NASDAQ, including 21 new stock listings in 2007. Ernst & Young forecast that Chinese companies will raise another $100 billion in 2008 through new stock market listings. The accounting firm also predicted that $45 billion would be raised from A-share listings in Shanghai and $33 billion from H-share listings in Hong Kong. Ernst & Young also predicted that more than $20 billion could also be raised on the smaller Shenzhen exchange, as well as more China listings in London, Singapore and the U.S.
In 2007, Shanghai raised more than $60 billion in A-share listings and passed both London and New York in new listings for the first time ever. Paul Go, a partner at Ernst & Young, said, "We expect the amount raised by mainland companies outside greater China to be similar to this year...now that some of the regulatory issues have settled down." He's referring to the more relaxed Sarbanes-Oxley standards for new stock listings for smaller companies. This is great news from my Global Growth service, since we have nine China stocks now, and likely more will appear on our Buy List in 2008.
