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China's Lifting of the Peg: Good for Business, or Too Risky?

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On Monday, Wall Street surged on the initial news that China will allow the yuan to rise against the dollar. The news is good for companies that supply commodities and equipment to China, because U.S.-made equipment will be comparatively cheaper there, while Chinese-made goods will be more expensive in the U.S. That gives manufacturers competing against Chinese companies an advantage here.

According to a Reuters report, companies with significant international presence, like Caterpillar (NYSE: CAT  ) , Yum! Brands (NYSE: YUM  ) , and Ethan Allen (NYSE: ETH  ) , said the move would likely be a positive for their business.

However, as the report warns, there are important risks that investors shouldn't overlook: "An economic slowdown in Europe could weaken the yuan against the dollar ... If weakening European demand hurts Chinese exports, the yuan could fall versus the dollar, rather than rise."

Is China's lifting of the peg ultimately a good thing, or are there too many risks involved? Let us know what you think in the comments box below.

Claire Stephanic does not own any of the companies mentioned. Motley Fool Options has recommended a bull call spread position on Yum! Brands. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.

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Related Tickers

10/21/2016 4:01 PM
CAT $86.33 Down -0.30 -0.35%
Caterpillar CAPS Rating: ***
ETH $30.55 Down -0.85 -2.71%
Ethan Allen Interi… CAPS Rating: **
YUM $86.97 Up +0.77 +0.89%
Yum! Brands CAPS Rating: ****