Contributed by: Nicholas Boguth
I want to revisit a topic I first discussed back in March – China’s currency.
In the previous blog, I explained why China was devaluing their currency and what potential effects it could have on their economy. As previously stated, one of the biggest risks with currency devaluing is the risk of capital outflow. If investors think that there are better opportunities elsewhere, they will move themselves or their money into a country with stronger currency prospects. In the chart below, we can see this exact event currently happening in China.
This is a topic that catches a lot of headlines, and it should be useful to have some background to filter through all the noise. We are likely to see headlines about how China is managing its currency well into the New Year; maybe headlines about Chinese goods getting cheaper as the US Dollar strengthens relative to the yuan, or you may have already seen the most recent headline about China placing restrictions to attempt to slow the capital outflow from the country. They want to slow this mass capital outflow because it is increasing their supply of yuan and triggering inflation that can be harmful in excess. We will stay tuned and observe how the country acts and reacts going forward. If you have any questions about these changes, don’t hesitate to reach out to the Investment Department here at The Center!
Nicholas Boguth is an Investment Research Associate at Center for Financial Planning, Inc.® and an Investment Representative with Raymond James Financial Services.
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