Thursday, June 28, 2007

Fair value of currencies

In the same issue of the Economist magazine I cited previously, there is an article about the valuation of currencies based on 13 quantitative models that Morgan Stanley developed. They found that the most overvalued currency (against the US dollar) is the New Zealand dollar, while the most undervalued currency is the Japanese Yen.

What about the Chinese Yuan that arouses much hoopla in Congress? The models found it to be almost exactly fairly valued.


Anonymous said...

Does the MS paper say anything about which methods have been the most predictive in the past?

Ernie Chan said...

The Economist article did not cite the exact reference to the MS research, and I didn't have a chance to follow this up yet.

Sanjay John Gandhi said...

Since we can't trade Chinese Yuan futures yet, the best way to play the rise of the Yuan is thru Chinese stocks listed on Hong Kong and USA. FXI is a benchmark ETF in the US, with great volume.

I just published a little theory on why you should invest ONLY in China and India, and throw away all your developed world stocks...or short them...check out my recent blog post at

I think in 30 years Yuan and Rupee bonds will be the "risk-free" bonds of the world.


Anonymous said...

Perhaps because of massive foreign exchange intervention?

Anonymous said...

perhaps you can give us a link to the MS paper ...

Ernie Chan said...

Dear Anonymous,
The Economist magazine did not cite the exact reference to that research, which in any case is likely to be available to their clients only.