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How do you hedge against this if you think the Yuan will be the dominant currency? Investing in chinese stocks is obviously very risky as you can only hold VIEs

How do you hedge against this if you think the Yuan will be the dominant currency? Investing in chinese stocks is obviously very risky as you can only hold VIEs and ADRs which either the SEC or the PRC could end at a moments notice. edit: My current viewpoint is the s&p500 is enough of a hedge given that these companies are multinationals trading in many currencies already -- I'm often wrong though :)

marlor 3y ago
I’m sure the Yuan will increase somewhat as a reserve currency, but I’m skeptical it will become dominant. China has systemic issues at the moment, with a working-age population that peaked some time ago and a property market that is perpetually on the verge of implosion. There are mounting pressures in domestic consumers, and an increasing move towards “dual circulation” (with a focus on the domestic part of that duality). Then there’s the risk of a miscalculation in the East China or South China seas. Given that CNY trades in a tight, centrally-managed range against the USD (it’s almost always between 6-7 CNY to the dollar, and only briefly traded outside that during the pandemic), I’m not sure there’s a big incentive to use CNY as a hedge against USD.
Gustomaximus 3y ago
I think the hedge is more about not being too USD centric. I wouldn't bet on any one currency too heavily. China has its own set of problems. My guess is more likely we'll see more diverse currency in trade relevant to the trading countries. Broader, IMO I think the USD is walking dead. I don't know when, but fundamentally you have a government debt no-one expects to be paid back, and growing quite rapidly. I respect most people would say otherwise and I'm often wrong, but I don't see how this ends with anything other than default, which will be preceeded by money printing most likely. The US is a huge and dynamic economy, so maybe they will prove this view wrong, or more likely drag things out for a long time, but humans being humans, at the first sign people start feeling they might not get their monies worth from USD, the response will be rapid as people try to protect their worth. This de-dollarisation seems part of the process and given Ukraine/Taiwan tensions no doubt is a strong drive from other nations. But off tangent but generally I would go with diversified vs focus on one alternative. Personally I went 15% cash and gold each from my shares a couple months back... Time will tell if I'm right or miss the next bull moment.
- bee_rider 3y ago
  It seems pretty tricky to replace the USD. Every country that seems like it might be more stable than the US seems to have aging workforce issues…
TechBro8615 3y ago
You could invest in US weapons manufacturers, because the petrodollar is going to go down swinging.
user_named 3y ago
There are more than 3,000 different China A-shares that you can purchase in Hong Kong via Stock Connect. You can also purchase any Hong Kong listed shares.
marianatom 3y ago
> Yuan will be the dominant currency... No. Just No. Yuan is not convertible and volatile. it's only 3% of global currency reserve, behind dollar (60%) and euro (20%) https://carnegieendowment.org/politika/88926 https://carnegieendowment.org/politika/88926. Even Russians don't want yuan, Russia has been selling renminbi since the beginning of this year https://asiatimes.com/2023/04/rmb-based-trade-hasnt-worked-out-for-moscow/ https://asiatimes.com/2023/04/rmb-based-trade-hasnt-worked-o... Also, China's economy is crashing hard. China is now entering its third year of its own Great Depression, with 30% unemployment rate, 90% unemployment rate for new grads (it's so bad, Guangzhou government just sent 300k youth to countryside for a program), 80% retail collapse (entirely empty malls in Beijing, Shanghai, Shenzhen), 50% real estate price collapse. Guizhou is the first province to declare bankruptcy ever. According to the office for national statistics in China, for jan/feb of 2023 http://www.ce.cn/xwzx/gnsz/gdxw/202303/27/t20230327_38464161.shtml http://www.ce.cn/xwzx/gnsz/gdxw/202303/27/t20230327_38464161..., car manufacturing profits is down 41%. non-metal products manufacturing profits is down 39%. chemicals manufacturing profits is down 56%. electronics manufacturing profits is down 71%!! In fact, all businesses have dropped 22% in profit. Not to mention the 1M+ SMB that failed in the last 2 years. Apple, dell, hp, lg, Kyocera are all shifting manufacturing out of China. Apple by 50% by 2025, Dell by 2027. It is estimated that China's portion of worldwide phone production will drop from 90% to 50% by 2025, and worldwide laptop production 70% to 30% by 2027. China's export is never recovering, when 83% of American, the world's biggest consumer segment, have negative views of China https://www.rfa.org/english/news/china/pew-china-enemy-04122023154031.html https://www.rfa.org/english/news/china/pew-china-enemy-04122...

marlor 3y ago

I’m sure the Yuan will increase somewhat as a reserve currency, but I’m skeptical it will become dominant. China has systemic issues at the moment, with a working-age population that peaked some time ago and a property market that is perpetually on the verge of implosion. There are mounting pressures in domestic consumers, and an increasing move towards “dual circulation” (with a focus on the domestic part of that duality). Then there’s the risk of a miscalculation in the East China or South China seas. Given that CNY trades in a tight, centrally-managed range against the USD (it’s almost always between 6-7 CNY to the dollar, and only briefly traded outside that during the pandemic), I’m not sure there’s a big incentive to use CNY as a hedge against USD.

Gustomaximus 3y ago

I think the hedge is more about not being too USD centric. I wouldn't bet on any one currency too heavily. China has its own set of problems. My guess is more likely we'll see more diverse currency in trade relevant to the trading countries. Broader, IMO I think the USD is walking dead. I don't know when, but fundamentally you have a government debt no-one expects to be paid back, and growing quite rapidly. I respect most people would say otherwise and I'm often wrong, but I don't see how this ends with anything other than default, which will be preceeded by money printing most likely. The US is a huge and dynamic economy, so maybe they will prove this view wrong, or more likely drag things out for a long time, but humans being humans, at the first sign people start feeling they might not get their monies worth from USD, the response will be rapid as people try to protect their worth. This de-dollarisation seems part of the process and given Ukraine/Taiwan tensions no doubt is a strong drive from other nations. But off tangent but generally I would go with diversified vs focus on one alternative. Personally I went 15% cash and gold each from my shares a couple months back... Time will tell if I'm right or miss the next bull moment.

bee_rider 3y ago
It seems pretty tricky to replace the USD. Every country that seems like it might be more stable than the US seems to have aging workforce issues…

TechBro8615 3y ago

You could invest in US weapons manufacturers, because the petrodollar is going to go down swinging.

user_named 3y ago

There are more than 3,000 different China A-shares that you can purchase in Hong Kong via Stock Connect. You can also purchase any Hong Kong listed shares.

marianatom 3y ago

> Yuan will be the dominant currency... No. Just No. Yuan is not convertible and volatile. it's only 3% of global currency reserve, behind dollar (60%) and euro (20%) https://carnegieendowment.org/politika/88926 https://carnegieendowment.org/politika/88926. Even Russians don't want yuan, Russia has been selling renminbi since the beginning of this year https://asiatimes.com/2023/04/rmb-based-trade-hasnt-worked-out-for-moscow/ https://asiatimes.com/2023/04/rmb-based-trade-hasnt-worked-o... Also, China's economy is crashing hard. China is now entering its third year of its own Great Depression, with 30% unemployment rate, 90% unemployment rate for new grads (it's so bad, Guangzhou government just sent 300k youth to countryside for a program), 80% retail collapse (entirely empty malls in Beijing, Shanghai, Shenzhen), 50% real estate price collapse. Guizhou is the first province to declare bankruptcy ever. According to the office for national statistics in China, for jan/feb of 2023 http://www.ce.cn/xwzx/gnsz/gdxw/202303/27/t20230327_38464161.shtml http://www.ce.cn/xwzx/gnsz/gdxw/202303/27/t20230327_38464161..., car manufacturing profits is down 41%. non-metal products manufacturing profits is down 39%. chemicals manufacturing profits is down 56%. electronics manufacturing profits is down 71%!! In fact, all businesses have dropped 22% in profit. Not to mention the 1M+ SMB that failed in the last 2 years. Apple, dell, hp, lg, Kyocera are all shifting manufacturing out of China. Apple by 50% by 2025, Dell by 2027. It is estimated that China's portion of worldwide phone production will drop from 90% to 50% by 2025, and worldwide laptop production 70% to 30% by 2027. China's export is never recovering, when 83% of American, the world's biggest consumer segment, have negative views of China https://www.rfa.org/english/news/china/pew-china-enemy-04122023154031.html https://www.rfa.org/english/news/china/pew-china-enemy-04122...