Get In On China’s Debt Now!

| August 3, 2011

I love the smell of fresh newsprint.  I do.  Call me crazy.

I love opening up a copy of the Wall Street Journal and looking for the next great investment idea.  Or catching up on what’s going on with current financial events.  You know… mergers, bond auction results, and economic news.  Print is fun to read.

However, I don’t spend as much time in the Journal as I once did…

Long gone are the days of depending on the newspaper for all your financial data.  We have CNBC, Bloomberg Radio and TV, and of course… the internet.  Everything is immediate.  We get data on the fly and it’s available with a simple click of a button.

To me, reading the Journal is more of a throwback… a comfort really.  It reminds me of the days when investing was simple.

Remember when everyone invested like Warren Buffett?  Can you recall when everyone thought “buy and hold forever” was a great strategy?  And sure, most times this advice still holds true.  I know when I talk to my father, he still thinks this way.  Which isn’t a bad thing.

But we hear less and less of it every day…

Watch CNBC or listen to guys like Jim Cramer and you can get easily confused.  I can recall, more than once, listening to Jim on the radio… long before he had his “Mad Money” TV show.  And I’d hear him on Monday pumping up stock XYZ as the next greatest company ever.

And what’s crazy is I’d tune back in on Friday to hear him bashing XYZ’s management over their poor quarterly earnings… and telling you to “sell, sell, sell”!  How can you make money like that?

It’s my personal opinion that the days of “buy and hold” for most investments are long gone…

But there still are some great “buy and hold” investments out there. These are the investments which stand the test of time.  Just look at gold, silver, oil, Microsoft, or Apple to name few.

And now I’ve found another… A place you can put your money, simply kick back and enjoy the returns.

So what is the next great investment?

Chinese debt.  More specifically, Renminbi Yuan denominated debt…

Not only does this investment offer a great bond return, it’s a currency growth play!  And that allows you to take advantage of the best of the Chinese markets.

Let me explain…

China’s government debt is providing superior yields versus US government debt right now.  For example, the average 10 year bond yield in China is 4.03%.  And the same 10 year US Treasury yield offers a return of 2.69%.  Obviously, a 50% greater yield can’t be argued with… and on government guaranteed debt!

While a great return on debt is the most obvious attraction, you can’t underscore the improvements happening in the Renminbi Yuan currency market.  For now, it’s a very new market, as the Chinese have always held absolute control over both their currency and debt.

It’s only now they’re allowing foreign ownership of Renminbi Yuan denominated debt.

In fact, the first steps to an un-pegged (or freely traded) currency are underway.  They’ve set up an exchange in Hong Kong to transact both currency trades and Chinese debt trading.

This will eventually allow for true Yuan appreciation.  And with growth and inflation running hot, for as long as it has, there’s really no telling the true value of the Yuan.

If we look at another BRICS country, Brazil for example… their currency is up by over 20%.  And in China, the growth is even hotter than in Brazil.  As of right now, China’s currency is up by just 1.6% this year.  It’s pretty obvious what’s going on here… “free” trade isn’t that “free” yet.

In a previous article, I wrote about the Chinese taking steps to make the Yuan a world reserve currency.  To make it happen, they’ll need to allow their currency to trade in a truly free market.  This will need to happen before the world starts holding the Yuan as a reserve currency.

While they’ve got a long way to go, the Chinese are starting to loosen their iron grip.  And this is great news for investors just getting into the market.  You see, the real upside in the currency has yet to be realized!

This is why I see buying Chinese debt and currency as a long term hold.  Once the free markets are fully integrated into China, there’s no telling what the currency will be trading at.  But there’s one thing for sure… it’s going to be a heck of a lot higher than where it is now!

So how can you buy into the Renminbi Yuan debt market?

You can buy into the brand new Renminbi Yuan & Bond Fund from Guinness Atkinson Funds (GARBX).

Here’s the deal…

The investment strategy of this brand new fund is to buy debt and cash instruments denominated in the Chinese Renminbi Yuan.  Over 80% of the fund will focus on buying debt instruments issued by the Chinese government, as well as the debt of Chinese corporations with government contracts.

Their belief is as I described earlier… the Yuan is significantly undervalued versus the US Dollar and other developed country currencies.  And as the currency of the second largest economy in the world gains in value, so will the underlying investments!

It feels like the old days again.  Like I’ve opened the pages of the Wall Street Journal and found that next great idea.  You know what I mean… that “Warren Buffett buy and hold” gem.

If you’re looking for a way into the Chinese debt and currency market, look no further… think about adding the Renminbi Yuan and Bond Fund into your portfolio.  It could be a great investment in your portfolio for the next 10 years!

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Category: Currency Trading

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