Archived IMT (2010.06.20)

CHINA's ANNOUNCEMENT TO INCREASE YUAN FLEXIBILITY would have a negligible market impact (no major change by end of week) if any currency revaluation is no more than 2%. If the revaluation is more than 2% then we could see some upside in commodities, Asian currencies as well as global equities on the rationale that a stronger purchasing power would increase Chinese imports for global trade. Only to the extent that markets worry about the negative impact to Chinese exports would equities sell-off. Some Chinese textile makers are already on the edge of bankruptcy. The other issue is that of the FX band, which if widened from 2.1%, then it could raise the risk of a potential DEPRECIATION of the yuan in the event of falling stocks. One last thing; the MORE important factor is the SUBSEQUENT revaluation of the yuan over the rest of the year and NOT just the initial annnouncement of today or this week. Ashraf is still in South Africa for the World Cup (on holiday).