Asia: Strong currencies and The Economic Time
Summary
We all read about Asian currencies strengthening. Ever thought about the monetary and thus market implications of this?Topics Covered
- Stronger currencies
- What these imply for The Economic Time™ in Asia
- How to make money off this idea
Background
1. Stronger currencies
On various occasions we have sought to explain why superpower currencies must whither.
Our bets are that for the time being, the US Fed will have to cut Fed Funds rates even more, making the dollar even less attractive than it is now.
This implies a stronger Euro: this year already it has risen by 8%.
However, who has outperformed the Euro?
Here is a table giving you the percentage change of various currencies versus the US dollar since January, 2007:
| COUNTRY | % CURRENCY GAIN VS US DOLLAR SINCE 1/07 |
| India | 10.2 |
| Euro | 8.1 |
| Philippines | 7.1 |
| Thailand | 4.8 |
| China | 3.9 |
| Malaysia | 2.1 |
| Singapore | 2.1 |
| Korea | 1.8 |
| Macau | 0.1 |
| Taiwan | -0.9 |
| Indonesia | -1.7 |
2. What these imply for The Economic Time™ in Asia
Assume that the global Economic Time keeps worsening, particularly due to America and Japan remaining dead. That implies a slowdown in Asian export growth to America, first and foremost. Thus, price competitiveness in export markets will become a policy priority for central banks in the region.
This means that local Asian governments will seek to stem the rise in their currencies - buy issuing more of their own currency. The increased supply of local currency keeps its price on foreign exchange markets from rising too much.
This has everything to do with The Economic Clock™: by seeking to keep their local currencies from rising too much, the region's Central Banks will increase their respective excess supplies of money. And as we have maintained forever: an excess supply of money has to go into asset markets, by definition.
3. How to Make Money Off This Idea
- Always consult with your financial adviser before doing anything!
- Keep buying the Euro and particularly Sterling: they will keep rising while the dollar keeps slumping.
- Buy the stock markets which we identify in our Economic Clock as having an excess supply of money - particularly China, Hong Kong and India.
- Remember that when exchange rates strengthen, imports get cheaper in local currency terms: the Indian is paying 10% less rupees per US dollar of import. Thus, where there is a strengthening exchange rate and an excess demand for goods - such as in the three countries we just mentioned, buy companies that are involved in the importation of goods, too. Such imports can range from clothes to machinery.
