Inflation may have taken a pause here, but many economists widely expect it to pick up in the second half. Luckily, the PBOC now has a few bullets in the gun to fire against price pressures.
In terms of rate action, we expect another interest rate increase by June. Remember that deposit rates are less important to Beijing than lending rates, so you may see less pressure on the consumer in the next phase.
Yuan appreciation should not be overlooked here, either. But Beijing will do this on their terms and not on any basis imposed by the U.S. or other foreign monetary authorities.
Watch the impact on yuan funds like the WisdomTree Dreyfus Chinese Yuan ETF (NYSE:CYB). In fact, reserve requirement hikes and outright interest rate moves seem to be working to curb inflation while giving Chinese consumers a shot in the arm by making the yuan effectively stronger in terms of its buying power. This is a rate hike but also effectively a tax cut. Note the movement in names like Sina Corp. (NASDAQ:SINA), Baidu, Inc. (NASDAQ:BIDU), Sohu.com Inc. (NASDAQ:SOHU) lately.
The Chinese Internet space is directly exposed to this effective consumption increase, and these stocks are alive and well.
Emerging Money provides insightful and timely information about the increasingly important world of Emerging Market investments. CNBC Emerging Markets Contributor Tim Seymour leads the team of Emerging Money to bring you cutting edge global news and analysis.
About Tim Seymour: Tim is a founder of Emerging Money. He is a founder and Managing Partner at Seygem Asset Management, and The Emerging Markets Contributor to CNBC. Seygem Asset Management focuses on investing throughout the global emerging markets asset class. With a view that emerging and developing economies will continue to outpace the economic growth and advancement of developed economies, Seymour has devoted a career to investing in the dominant markets of tomorrow, today. Seymour’s career has included significant experience in both alternative asset management (hedge funds) and capital markets, having launched two hedge funds, and built the largest Russian broker dealer in the USA. Seymour started his career at UBS, focusing on international credit (cash, swaps, forex) in a specialized hedge fund group (New York). Seymour completed the firm’s training program after graduating with an MBA in international finance from Fordham University. Seymour received his undergraduate degree at Georgetown University.