Cutler Blog

Thoughts On China Volatility

January 07, 2016

As most of you know –tough to miss considering that all the news is discussing it- the Chinese stock market took another dive last night.

As a matter of fact the CSI 300 index plunged 7% and the market closed in under 30 minutes, which means that Erich did NOT get a good night sleep.

Part of the reason is that while the Chinese government is devaluing the yuan, they still have to spend money to buy yuan to control the fall. After all, devaluation is causing dramatic capital outflows already. The funny thing is that since 2011 the government has complained about an excess of foreign exchange reserves. However, we can all be certain that they do not want a feeding frenzy and a complete collapse of the yuan. The PBOC said back in 2011 that reserves exceeded a “reasonable” level when they were just over $3 trillion. The latest figures show them at $3.3 trillion, after peaking at almost $4 trillion. So, what is “reasonable”? I suspect that something under $3 trillion is the goal. What does this mean? More devaluation, more stock market volatility. And, the Japanese – I mean Abe- must be HATING this, as their currency has risen, because many investors in Asia rush to Japan when things look bleak in China.

Who needs Star Wars when we have Currency Wars.


PS. This is all to say that in today’s world the markets ALL revolve around central government actions.

 

Disclaimer

These blogs are provided for informational purposes only and represent Cutler Investment Group’s (“Cutler”) views as of the date of posting. Such views are subject to change at any point without notice. The information in the blogs should not be considered investment advice or a recommendation to buy or sell any types of securities.   Some of the information provided has been obtained from third party sources believed to be reliable but such information is not guaranteed.  Cutler has not taken into account the investment objectives, financial situation or particular needs of any individual investor. There is a risk of loss from an investment in securities, including the risk of loss of principal. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will be profitable or suitable for a particular investor's financial situation or risk tolerance.  Any forward looking statements or forecasts are based on assumptions and actual results are expected to vary. No reliance should be placed on, and no guarantee should be assumed from, any such statements or forecasts when making any investment decision.
 

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