jmt, OT
"I will bet you one share of Deswell the Yuan devalues by the end of the 4th Quarter."
I'll give you odds if you'll boost the stakes -g-
It's difficult to respond because you have mixed events in Hong Kong into a position on devaluation of the Chinese yuan. The two economies have numerous ties, but are still independent.
"The projection is not based upon the past, but the future, to support growing unemployment and economic and social unrest."
Can you tell me how a devaluation would change the above? 80% of China's economy is domestic. A devaluation would also devalue banks loans, increase costs on anything imported or based on another currency (commodities), and cause massive inflation as we are seeing in the rest of Asia.
"Growth is well below the required targets, and is only supported to date by adding to inventory" I don't know where you got this. China's growth will primarily be internal, from the 80% referred to above. There's no big buildup of inventory as in the rest of Asia. China probably will fail to meet the earlier projected growth of 8%, but the current estimates (by outsiders) put growth at 4.5-5%. With no devaluation, this will be in 'real money'. Other Asian economies are 'contracting' from 5-10% measured in devalued currencies.
"Business's are failing in China."
Businesses are failing in the US. The largest industries in China are still government owned and supported. Most businesses are small operations supplying the domestic economy. Times are tough, but I have seen no reports of massive business failures in China or Hong Kong. In the other Asian regions, bankruptcies have escalated to an extent that it is causing bank failures.
"The reserves are an issue as they are the hammer used to state China can support the currency indefinately. If this is not true the speculators will go after the currency (as they are doing)."
You seem to be mixing China and HK. The government sets the value of the yuan. It is not traded on the open market (except the black market). There are and cannot be attacks by speculators like the hedge funds. The amount of foreign exchange reserves really doesn't become a factor in this situation if the Chinese government does not accumulate a huge debt burden and China's foreign debt is minimal.
"To my knowledge government intervention in both currency and equity markets has never worked long term to fix fundamental problems."
I agree, but China isn't interfering in the markets, it's Hong Kong. The HKMA intervention in the market is a unique situation. I went into it in the earlier post. It is working short term. It will take time to determine if it will have been successful, requiring the HK economy to improve. Recent surveys indicate an optimistic trend by the populace and improvement in the sectors most hurt by the crisis.
"I am not clear on how a devaluation will help Deswell. Assets are in Inventory, receivables and $HK dollars. Inventory will be worth less, receivable are in $HK and Yuan will devalue, labor Costs maygo dowm but So will revenue while cost of raw material will increase."
Assets are in Equipment also. Equipment is worth what it's worth irregardless of currency. Inventory is primarily raw material at all times and it's based in $US. Receivables are in $HK and $US with short term turnover so a devaluation in the $HK portion would be minimal. Labor costs would decline, but so would lease contracts based in yuan, utilities, and other costs in China. Payables would decline. The net effect of a devaluation would be a slight increase in BV and lower operating costs. However, a devaluation of the yuan would prompt another round of devaluation in the region (that would drift around the emerging markets) and the overall results would be negative.
"Still a good value but price is not down for no reason. Markets are generally efficient. Off to buy more Amazon.com."
My sentiments exactly. Why buy stock in a solid company like Deswell that no one has heard of when you can pick up a great buys like Amazon or Yahoo?
JMHO,
Ron
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