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China Devalues Currency

Sunil Swami, Chief Investment Officer | AUG 12, 2015

China's Currency Moves Hit Markets

On Tuesday August 11, China devalued its currency, the yuan, relative to the U.S. dollar by 1.9%.  The next day the currency dropped another 1.6%.  It was the biggest drop in the yuan in a decade and triggered a global sell-off in stocks and commodities.

The Chinese central bank suggested that the devaluation was aimed at making the tightly controlled currency more market oriented.  The Chinese currency is pegged to the U.S. dollar and over the past year, the yuan had strengthened along with the dollar, causing exports to plummet by 8.3%.

The devaluation of the yuan hit commodity prices hard.  Oil fell 4% and copper was down 8% since commodity importers would have to pay more in yuan, likely hurting demand for commodities.  Stocks were also hit because devaluation of the yuan would have a negative impact on profits of companies that export to China – such as Apple, Caterpillar, and European luxury brands like Prada.

At Alerus, we have no position in commodities in our portfolios and continue to be underweight energy stocks.  We believe the devaluation of the yuan was long overdue and is a part of the natural global market adjustments process.  We would be buyers of developed market equities on this weakness.

The content available on this site is provided for informational purposes only, is not intended as an offer or solicitation for the purchase or sale of any financial instruments and should not be relied upon as an investment recommendation. Alerus Financial, N.A. and its affiliate subsidiary companies make no representations or warranties as to the accuracy, completeness or timeliness of the information. The information is not intended to provide legal or tax advice. Individuals should consult a qualified legal or tax advisor for advice specific to their circumstances.

About the Author

Sunil Swami, Chief Investment Officer

Mr. Swami has decades of experience in the investment management and related fields.

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