the Bulls are leaving with china shop
again this summer China frightened the
herd devalued its currency but
confidence returned and the renminbi
made back about half of its loss a loss
that anyway wasn't all that big to start
with just three percent frankly that's
pretty much nothing compared with the
usual emerging market currency
devaluation but today the renminbi
officially closed back below the low
that it closed at in August given up all
of the autumn bounds well I should say
it is still a little bit better than the
worst point reached intraday during
summer now optimism and pessimism about
the currency it's reflected in the
behavior of the offshore traded renminbi
which isn't limited by the official
onshore two percent daily band the red
line here shows the value of the
domestically traded renminbi against the
dollar that's known as the CNY after its
Bloomberg initials and the offshore
currency the cnh here in blue the gap
between the two was very very wide after
the first devaluation back in the summer
you can see signs of that there that was
because traders were betting that it was
the start of a generalized debasement of
the currency fear was that China would
attempt to weaken in order to ease the
pressure on its exporter's as its
economy was slowing that then hit
industries worldwide which compete with
Chinese companies as well as hurting
foreign suppliers of everything from
durable goods to iron all whose
dollar-based products would now cost
more in renminbi the gap is now widened
right back out again having briefly
narrowed to nothing in fact slightly
reversed there in the summer in sorry in
the autumn as the fears calmed that gaps
now right back out again where it was
very close to where it was in August
because the data came out today showing
capital outflows and falling imports and
exports again stoking fears that the
renminbi Liz going to be allowed to keep
on weakening the direction of the
currency is particularly important to
countries such as Brazil or Australia
which sell commodities to China
steelmakers were already complaining
that china is trying to export its way
out of trouble dumping excess capacity
abroad rather than shutting down
unprofitable facilities at home them all
the currency weakened louder China's
competitors are likely to shout from a
investor perspective weaker renminbi
particularly matters because it adds
global deflationary pressure but in the
short term a weaker renminbi is most
obviously bad for commodity prices so
for emerging markets on here the red
line shows the gap between the onshore
and the offshore renminbi against the
dollar and the blue line shows the
relative performance of emerging markets
against developed markets as the gap
between the two initially widened dad
and then started to narrow again during
the autumn you can see that the
confidence then returned and emerging
market beat developed market people were
happy again about China but for the past
two months that gaps been widening out
again that's the red line and as a
result emerging markets have been
underperforming the develop market
edging market at the moment do look
fairly cheap mining shares are back at
levels that were last seen in august
2003 when priced in dollars whether
there are by depends on all sorts of
factors from Brazilian politics to mine
closures and dividends but chief among
those is the performance of China and
its currency you're really taking a punt
on what will happen to this red line
here