China Currency Devaluation in Perspective

The USA and World Capital Markets have moved lower of late after China announced that they would allow their currency to float lower against the US dollar as well as world currencies.

China is huge, and if they catch a cold (or worse), the world could too, but we wanted to shed some light on the subject in a more unbiased manner.

The Fears:

  • China is slowing and having to reach for larger levers to jump-start their economy – Ok… fine by us
  • China is exporting their deflation by lowering the cost of goods they sell to other countries, not to mention increasing their competitiveness – Ok, if other countries could, they would too
  • Selling into China will be more expensive — As an export country, this is not hugely relevant

Our thoughts:

  • Markets are frothy, earnings are only so so, this is an excuse to bring valuations back in line with where they maybe should be.
  • Is this a really big devaluation?

Oh…take a look at this chart from Liz Saunders at Schwab …   Big Devaluation?

China V Euro



Have a Great Day!

John A. Kvale CFA, CFP
8222 Douglas Ave # 590
Dallas, TX 75225

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