weekly option strategy

Emerging Markets: Chinese Yuan, Shanghai Markets Set Record Highs

Friday, 27 July 2007 15:19:48 GMT  |  Richard Lee, Currency Strategist

Recap Of The Week’s Top Stories…

 Paulson Set For Impromptu Trip To China
US Treasury Secretary Henry Paulson announced that he will travel to China at the end of the week, hoping to further discuss matters of trade and currency policy.  Although relatively expected by the market, the trip is on short notice and comes within days of a legislative draft by Congress.  With several bills already pending, the US Senate Finance Committee is said to begin furthering legislation later this week, intent on turning up the heat on Chinese officials.  In line with political measures in the past, US politicians continue to argue for a more flexible currency regime as it was recently revealed that China’s trade surplus once again smashed records.  “This trip is part of an ongoing process to strengthen our strategic economic relationship – to address long term issues such as working with China to rebalance its growth and increase the flexibility of its currency”, Paulson said in a statement.

Regional Hedge Funds Continue To Add To Holdings
Bent on reaping the benefits of the recent bull market, regional money managers in Asia increased their combined assets to $35.5 billion in the first three months this year.  The figure was impressive as a rankings report, topped by Sparx Asset Management Co., showed the leading 25 firms were split among regional countries including Hong Kong and Singapore with two top Japanese managers dropping from the top 10 list.  The survey according to Institutional Investor’s Alpha magazine, confirms nothing but already mounting interest and attention that has been building in the region for some time now, sparked by an equity market that vaulted over 100 percent in 2006.  Further interest apparently is growing, with particular in China, as its current economic infrastructure is likely to be revamped ahead of next year’s Olympics. Subsequently, the rising global focus is likely to continue to pace torrid demand for Chinese yuan, helping the economy to achieve even higher highs above current growth rates.

Chinese Bank Surpasses Citi As World’s Largest
Surprising market investors, Industrial & Commercial Bank of China surpassed Citigroup in the US as the world’s largest bank by market capitalization.  A stunning announcement that shows the increasing depth of Chinese influence, market capitalization was at $254 billion for ICBC, with shares now trading at 5.75 yuan.  Citigroup on the other hand currently sports a $251 billion capitalization, with shares closing at $50.73 on Friday.  Incidentally, it has been noted, amid the glee, that the price at which ICBC shares are trading is also a reflection of an overheated and over speculated market as share values are now 28 times earnings.  The figure is far above the 11 for Citi which is deemed more profitable.

Asian Investors Support Barclay’s Bid For ABN Amro
In a stunning move, the Chinese government has entered the bidding on ABN Amro over the weekend.  Funding through the Barclay’s bid, the Chinese government has invested enough to garner as much as 7.7 percent of the bank, in tandem with Singapore’s Temasek proposed stake of 3.3 percent.  The investment is the second of its kind, following the investment in Blackstone Group before the firm went public earlier this summer as the government looks to continue its diversification of over a trillion dollars in reserves.

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