Let the Great China Acquisition Boom Begin!

The Chinese have opened the Pandora's box of currencies (see story here http://tinyurl.com/fhwoa), and I'm not sure how it's going to play out. I'll explain...

Just a few days ago, China relaxed the capital controls it imposes on individuals and companies. Now, it is much, much easier for these individuals and companies to hold foreign currencies and invest abroad.

China is doing this to create more demand for dollars (companies will in effect be "buying" dollars). Beijing hopes this will take pressure off it to revalue its currency, the renminbi (also known as the yuan).

"An outflow of foreign currencies can ease pressure for further yuan appreciation. This offers a good argument before President Hu's U.S. visit to show the Americans China's commitment to further currency reform and ease the U.S clamor for a firmer yuan," said economist Yi Xianrong.

That's the theory, anyway. One problem is that the yuan is widely seen as undervalued. This could have the perverse effect of putting internal pressure on China to revalue the renminbi.

The big opportunity I see is that now Chinese companies can easily accumulate the foreign currencies they need to buy the natural resource companies they covet. We could be looking at a massive tsunami of Chinese investment in Canada, Latin America, and Australia.

So, also perversely, the currencies that get the biggest boost could be those that need it least -- the Canadian and Australian dollars.

What an exciting time to be investing in Canada, Australia and Latin America. Maybe Chinese investment won't increase rapidly -- it's hard to game a country where ALL the economists in the world get its GDP growth wrong.

But the potential ... ah, the potential is ENORMOUS.

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