This morning, the Chinese government tweaked the way it values its currency. The yuan, which was once pegged exclusively to the U.S. dollar, will now be valued against a balanced collection of different foreign currencies.
Yes, you should care.
Currency trading may not be your cup of tea. You may not even like tea. But if a currency move happens to impact all the tea in China, it should matter to just about any investor.
For starters, Chinese companies have been popular within stateside growth-stock portfolios. ShandaInteractive (NASDAQ:SNDA) and NetEase.com (NASDAQ:NTES) are active recommendations in our Motley Fool Rule Breakers newsletter service on the basis of their explosive growth in online gaming in the world's most populous nation. The move to strengthen the yuan by tying it to better-performing currencies found most Chinese stocks inching higher this morning. (Sorry, folks -- nationalist pride aside, the dollar just hasn't held up all that well against more vibrant forms of legal tender in Europe and Asia.)
A stronger yuan will serve Chinese companies well. Chinese exporters may feel a slight sting, but that won't necessarily affect companies such as The9 (NASDAQ:NCTY), SINA (NASDAQ:SINA), and Sohu (NASDAQ:SOHU), which rely exclusively on the strength of the local economy. Travel specialists Ctrip (NASDAQ:CTRP) and eLong (NASDAQ:LONG) should also benefit as stateside companies flock to China -- not to secure cheaper imports, but to sell their suddenly more affordable exports. All of these stocks opened higher this morning, but the gains aren't limited to China's publicly traded companies.
That's right. If you own stock in a major American conglomerate that relies on exports to China for a slice of its revenue pie, you stand to benefit. The move to beef up China's yuan may have lowered the dollar's value against many world currencies, but that drop also makes it easier for stateside exporters to compete globally.
So, yes, there's money to be made all over with today's move. That's green tea you're sipping. Tastes a lot better now, doesn't it?
NetEase.com and Shanda were recommended last year in Motley Fool Rule Breakers . If you're interested in high-octane growth-stock investing, take advantage of the service's free 30-day trial.
Longtime Fool contributor Rick Munarriz has been a fan of China's high-margin gaming stocks for a long time and recommended NetEase.com last year to Rule Breakers subscribers. The Fool has a disclosure policy. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.
