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Investing Specialists

Investing Implications from the G20 Summit

Two stocks in particular will benefit from IMF funding.

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While much of the headline-grabbing numbers from the G20 communique were more hype than reality, there were some important parts that should benefit some specific stocks. As editor of Morningstar's InternationalInvestor newsletter I regularly provide commentary about important economic activity.

My Takeaways from the Summit
The G20 statement emphasized $1.1 trillion in spending to combat the global crisis, which was received well by stock markets around the world. However, most of this was money that had already been pledged. The United States and China had already announced very large stimulus packages. Even much of the $250 billion increase in funding for the International Monetary Fund (IMF) had already been committed. Japan had previously stated it would supply the IMF with $100 billion and the European Union had announced it would add EUR 75 billion (roughly $100 billion). So the true incremental addition was about $50 billion, though $40 billion of that was to come from China. While $40 billion is a relatively small amount versus China's currency reserves of around $2 trillion, it was an important gesture. Historically, China has claimed it is a poor country and can't be expected to participate in such global financings. While this is a true statement on a per capita basis, China has by far the largest reserves in the world.

This gesture, along with Chinese Central Bank governor Zhou Xiaochuan's comments about changing the world's global currency from the dollar to Special Drawing Rights (SDRs), demonstrates China's plans on being more vocal going forward. China is concerned that the U.S. will try to inflate its way out of all the debt it is accruing to tackle the economic crisis. As one of the largest holders of U.S. Treasuries, China is sending a signal to Washington to be careful.

Allan C. Nichols does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.