China divides investors’ opinion like perhaps nowhere else. It is either the biggest, most important investment opportunity of the modern era, or it is a disaster waiting to happen. But, if you’re a bull, rather than access Chinese growth through the stock market, its currency provides an attractive alternative. By Andy Seaman, partner and portfolio manager, Stratton Street Capital.
The country’s possible bankruptcy should not be a concern. In net terms it is a huge creditor internationally, to the tune of $1.8trn, second largest in the world after Japan, and ahead of Germany. The country is running a current account surplus of around $190bn a year, compared to the US deficit of $412bn a year at present, so each year China is becoming a larger creditor. As a result there are large amounts of hard currency assets that could be used to pay off debt, so foreign debt is secure. This has led to the gradual but steady rise in the renminbi.
If we look at the experience of Japan as it became a wealthy nation, the currency appreciation was a constant theme.