weekly option strategy

China Weekly Wrap Up: Chinese Yuan Trades At A Record, Will The Stock Market Run Continue?

Friday, 13 July 2007 15:09:23 GMT  |  Richard Lee, Currency Analyst

Recap Of The Week’s Top Stories…

 

Rumored in the overnight, officials at the China Insurance Regulatory Commission have mulled over allowing asset management branches of insurance companies to double their investment in local equities.  Raising the bar to 10 percent, the decision, should it be announced, would allow major insurers like China Life and Ping An to beef up returns that have overshadowed revenue from declining premiums. 

 

Chinese Yuan Remains Near Record Low, Insurers Able To Double Equity Investments
Rumored in the overnight, officials at the China Insurance Regulatory Commission have mulled over allowing asset management branches of insurance companies to double their investment in local equities.  Raising the bar to 10 percent, the decision, should it be announced, would allow major insurers like China Life and Ping An to beef up returns that have overshadowed revenue from declining premiums.  Subsequently, the decision also comes at a time when domestic stock markets have pulled back, seemingly not as overheated as before and allowing for more stable investments.  Notably, it would additionally allow access to companies traded in Hong Kong contributing to two traffic in the underlying currency.  As a result, although the Chinese yuan continued to trade at record lows, the exchange rate pulled back modestly to trade at 7.5690 in the New York session.

 

Markets At A Glance

 

China’s Foreign Exchange Reserves Mount To $1.33 Trillion
Making headlines in the New York morning, China’s foreign exchange reserves fully topped $1 trillion to mark the world’s largest.  The increase in reserves will likely push politicians and policy makers alike in allowing the currency to appreciate at a faster pace as the economy continues to overheat.  Currency holdings rose 41.6 percent in the annualized comparison, growing $130.6 billion according to the People’s Bank of China.  Incidentally, the topic continues to feed speculation as to the actual inception of the planned investment agency by government officials.  Should the plan come to fruition, the fund would inevitably have considerable weight in the global marketplace as reserves don’t look to thin any time soon.

 

Chinese Yuan Rises To Record, Surplus Widens To $26.9 Billion
Boosting the Chinese yuan to another record at 7.5773 in the overnight, the market couldn’t help but notice that China’s surplus widened far past any expectation for the month.  In June, China’s trade surplus with global partners widened to an impressive $26.9 billion according to the customs bureau.  Higher by 86 percent on the annualized comparison, the report overshadowed estimates which pitted the surplus at $23.8 billion.  For the record, exports surged 27 percent to a record $103.27 billion as imports rose a paltry 14 percent to $76.4 billion.  Notably, the trade surplus with the world’s largest economy grew to $14.1 billion in the month and $73.9 billion for the first half of the year.  As a result, today’s figure will continue to help the case put forth by US legislators that an artificially low currency continues to help the Chinese economy sport an incredible trade surplus and a torrid pace of economic growth.  Traders can likely expect further rhetoric from US Congressmen as further sanctions are likely to be concocted.

 

China GDP Set For Higher Pace
In a research note today, analysts at US based investment bank Goldman Sachs forecasted that growth in the Chinese economy is expected to accelerate at 12 percent pace in the third quarter.  Citing supportive pressures from a 20 percent increase in industrial production, the estimates aren’t too far off from the truth as Chinese officials have produced little in the way of quelling overheating growth in the world’s fastest growing economy.  Not only is production higher, it seems that according to estimates, double digit increases in investment and have propped up the need for further inflation curbing by headline officials.  The report is likely to spur further rhetoric from Congress as recent policy adjustments by the Chinese officials have done little to appease the US’s appetite for further flexibility in the current foreign exchange regime.  Notably, the animosity is likely to be exacerbated this week as government reports are expected to show the trade surplus widened yet again for the month and is on track to completely shatter the pace $177.5 billion in all of 2006. 

 

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