The effects of the renmimbi no longer being pegged to the dollar

The Central Bank of China announced that as of 21 July 2005 it would change its currency regime. As of this date, the renminbi (the Chinese currency) will no longer be pegged to the US dollar but will float against a basket of currencies.

The initial impact on financial markets is very limited due to the small size of the revaluation (some 2% appreciation against the US dollar since the announcement). We expect the announcement to work out positively for Asian economies and stock markets, because more liquidity is likely to flow into the region as investors are speculating that the Chinese and other Asian currencies will appreciate further. The strengthening of Asian currencies is an investment theme that has been played in our portfolios since quite some time before this announcement. In both our Robeco Emerging Markets Equities fund and Robeco Chinese Equities we are benefiting from current appreciation through our exposure to companies with renminbi revenues and US dollar costs  (since their input costs will be translated at a lower rate). Examples are the automotive companies and domestic consumption plays.