Global Tax Insights
Global Currency News: How to Profit From China’s DevaluationAugust 28, 2015
Though the recent devaluation of the yuan presents risks and difficulties for U.S. investors, the expected market improvement could benefit U.S. in the long run.
The recent devaluation of the yuan- China’s currency, is part of China’s efforts to strengthen their struggling market. On August 11th, China set the value of the yuan almost two percent weaker than the U.S. dollar, the largest devaluation since 1994. This drop, China hopes, will assist their own economic growth, and could present some advantages to U.S. investors as well.
How could you benefit?
Though there are worries that the sudden devaluation of the yuan will negatively affect U.S. companies with primary operations in China, the surprise drop has also presented new opportunities which include:
- The ability to restructure the value of portfolios- The U.S. economy is in a relatively good place as of late, which means that investors have a chance for portfolio restructuring given the lower prices. Though there is obvious risk in investing in companies with high China exposure, experts expect that the suffering Chinese market will not remain that way for long. Just as the U.S. markets have struggled and picked up again, the Chinese markets are expected to gradually stabilize as well.
- The chance to buy more stock at a lower value- As China deals with a 20% stock decline, U.S. investors in Chinese stock can expect volatility, but it could be beneficial to invest now and reap the benefits later. By devaluing their currency, China is hoping to build up a more robust market, so U.S. investors could benefit greatly in the long run.
- The chance to buy commodities and oil at lower prices- The U.S. could benefit greatly from the lowered gas and commodity prices that have resulted from the yuan devaluation. Studies have shown that gas prices could be averaging less than $2 a gallon by this coming winter. The fall in commodity prices might mean lower inflation, resulting in the Federal Reserve perhaps holding off on increasing interest rates this fall.
- Opportunity to load up 401(k)s- The quantitative easing, or introduction of new money into the central bank’s money supply, that will likely be a result of the devaluation will present U.S. individuals with the opportunity to build up their 401(k)s. Though experts have said that while China deals with economic difficulties, individuals should closely monitor their allocation to China in global mutual funds within 401(k)s, China is expected to strengthen their market, meaning your contributions now will be worth it in the long run.
Since the U.S. market is currently in a stable place, with the unemployment rate down to 5% and over 200,000 jobs created, the devalued currency is not expected to pose a huge threat to the economy. As China builds up their market, U.S. investors could capitalize on the current low prices and build up the U.S. market even more.
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