Friday, March 11, 2016

China Is Going Out of Business

BBC March 8th, 2016
China Exports Drop Most In Seven Years
China's exports fell 25% in February, because their currency is no longer competitive. They are liquidating their FX reserves just to remain uncompetitive. At some point the Politburo will say "we're going out of business"...

The black line below is the Yuan versus the dollar which has been depreciating intermittently...However, the red line is the Yuan / EM Currency ETF ratio. This ETF is a composite of 15 Emerging Market currencies. As we see, the Yuan has been strengthening steadily relative to the rest of EM currencies...the ascent of the dollar has made China less competitive globally, despite the intermittent "revaluations"...

All of which means that China can't afford to have its currency tied to the U.S. any longer:

China is just following the rest of Emerging Markets lower, albeit at a slower pace
Yuan (black), EM Currency (red):