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Yuan Devaluation: Pick Industry-Specific Stocks
Aspire, Thought Leaders | 30 September 2015
By: Chen Xushuang
Articles (26) Profile

China has depreciated the value of the yuan by approximately four percent in August, sparking concerns over the possibility of a currency war. Economists have suggested that this sudden depreciation might trigger a fresh round of currency weakening around the emerging world and provoke global recession.

With regards to this topic, we had interviewed active market trader, registered fund manager, educator and author Mr DAR Wong, as well as Chinese equities expert Mr Kevin Gin, for their views.

1.   Does this mean currency war?

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The phrase “currency war” is also known as competitive devaluation. Basically, this happens when a number of nations deliberately depreciate their currency values in order to stimulate their economies. However, not everyone perceives yuan’s recent devaluation as the start of a currency war. In the view of DAR Wong, it is only done in anticipation of the US Federal Reserve interest rate hike. Thus he called it a move of “advancing by retreating”.

“If China were to do nothing and the rate hike actually does happen, it would create a stronger and more negative impact on the currencies of Southeast Asian countries,” he said.

Similarly, Kevin Gin does not even see the four percent depreciation as a typical devaluation, noting that the yuan already trades within a plus-minus two percent band on a daily basis. He also pointed out that Chinese imports and exports were already collapsing as early as two months ago, which clearly shows that the world economy is shrinking. He believes that the shrinking is led by a major restructuring going on within the economic system.

“Currency war is never a good thing,” said DAR Wong. If it were to take place, he foresees that the tourism industry would be “paralysed” as a result, in addition to slowing exports, for products such as refined oil, for instance.

“If you look at past history, it usually takes one to three years to recover, but many people will have their livelihoods adversely affected during the period.”

2.   Who are affected? 

Morgan Stanley has recently included the Singapore Dollar in the list of the “troubled ten” currencies affected by the yuan devaluation. Both DAR Wong and Kevin Gin acknowledged that Singapore’s exports might suffer, but Kevin Gin advises investors “look at things at a more company and industry specific level, rather than at a country level”.

DAR Wong also said that the biggest blow would likely be on Australia instead, because most of China’s raw materials imports are from Australia.

3.   What can investors do?

Despite the looming economic downturn, Kevin Gin opines that there are still opportunities out there for investors, though “some of these opportunities might not reside in Singapore companies”. The key, he said, is to find the right avenue to invest by taking a more company and industry-specific approach, instead of targeting specific countries.

He recommended industries that deal with pollution, ageing population, and robotics, etc. As for the stock market, he thinks that it would trade much higher than its current state, and advises investors to look out for government indications with regards to which sectors they support, especially with new policy initiatives.

Still worried about when and how much would the US Federal Reserve hike interest rates? Do you have burning questions that you want to ask regarding the China economic slowdown and SHCOMP nosedive in June? Are you confused if any of the external factors from other countries in Asia will affect your Singapore stocks portfolio?

Catch renowned investors and speakers with rich experience in the stock markets, who have had witnessed multiple stock market crashes and global recessions over the years at Shares Investment Conference 2015!

Speaker profiles

1. Dr Chan Yan Chong, a renowned investor with more than 25 years of experience and the MBA programme director & associate professor of business school at the City University of Hong Kong.

2. Kevin Gin (CFA), the Founder and Principal of Alpha Capital. He was the former COO for CITIC Securities, Head of Singapore and Regional Real Estate Research for Kleinwort Benson Securities Asia (now part of Credit Suisse) and Head of Greater China Property Research with Yuanta Securities (Hong Kong)

3. Louis Wong, one of the most experienced fund managers in Hong Kong. He has over 25-years of solid experience and track record in the financial market. He was awarded Best Financial Analyst for 3 years by the Putonghua Channel of Radio Television Hong Kong and is also a part-time instructor of several investment courses in various Hong Kong universities.

4. Daniel Loh, an investment coach that specialises in equities and derivatives trading, he appears regularly on local TV financial programmes like “Good morning Singapore” and “Hello Singapore”.

As a Communications Studies graduate specialising in journalism, Xushuang is keen to observe and explore issues that readers want to know more about, and to deliver quality content through engaging writing.

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