Although the Chinese economy appears to be weakening as we head
into the final part of the year, one segment of their nation
appears to be holding up quite well, the yuan. This currency
strength comes in the face of sagging growth in the most populous
nation on earth and ongoing worries over inflation, credit bubbles,
and central bank decisions.
Nevertheless, the yuan recently rose to the 6.28 mark against
the first time in nearly 20 years
that the currency has breached the level. Clearly, even despite the
issues plaguing the Chinese economy, investors remain at least
somewhat bullish on the currency, at least in the near term.
This could be especially true given the new level of uncertainty
surrounding the American presidential election. Romney has pledged
to be more aggressive with China and their currency policies, and
with his recent momentum, China could be looking to allow the yuan
to edge higher against the dollar in order to
quell some U.S. opposition over Chinese trade
After all, a stronger yuan makes it more difficult to label the
nation as a currency manipulator, while the increase could help
American exports to the PROC as well. Still, some are predicting
that we could see a slight decline after the American election,
although the trend of the yuan has been definitely higher, a
situation that could also assist in rebalancing China's economy
more evenly between exports and international consumption (see
China Currency ETFs: Slow and Steady Growth in
Given this trend, investors may consider yuan investments a
lower risk choice at this time, especially if China continues to
allow the currency to appreciate modestly against the dollar.
However, it is worth noting that even with the increase in value of
the yuan against the dollar that the currency has only added about
0.3% so far this year, although it has appreciated roughly 32%
since mid-2005 (read
If China Slumps, Avoid These Three Country ETFs
With this backdrop, investors seeking alternative currency
exposure-outside of the dollar-may be well-served by taking a
closer look at yuan-based investments. While Chinese stocks are
arguably too risky at this time, Chinese yuan ETFs could be a low
risk choice that seems poised to benefit in the near term-and over
the long term-as the country tried to rebalance its economy and
avoid a bigger trade scuffle with the U.S.
For these investors looking for some diversification into China
without much of the risk, any of the following China yuan ETFs
could be interesting picks. Just remember that they all have money
market like qualities so returns and volatility levels are likely
to be low for the group as a whole:
WisdomTree Dreyfus Chinese Yuan Fund (
The most popular Chinese Yuan fund is CYB from WisdomTree. The
product invests in short-term, investment grade instruments in
order to be reflective of both money market rates in China
available to foreign investors, and changes in the value of the
yuan against the dollar (read
China ETF Investing 101
The product charges investors 45 basis points a year but sees
solid volume on AUM of over $250 million. This suggests that bid
ask spreads will be quite tight and that total costs will not be
much more than the stated expense ratio.
The fund currently has a Zacks ETF Rank of 2 or 'Buy'.
Market Vectors Chinese Renminbi/USD ETN (
For investors seeking an ETN way to target the Chinese currency,
look no further than CNY. This product tracks the S&P Chinese
Renminbi Total Return Index which looks to track the performance of
the Chinese currency against the U.S. dollar, by using rolling
three-month non-deliverable currency forward contracts (see
Three China ETFs Still Going Strong
As an ETN, the product does carry the credit risk of Morgan
Stanley, although tracking error is not a problem with CNY, since
it is a note. However, investors should realize that the fee is a
bit higher at 55 basis points a year while volume comes in below
15,000 shares a day, suggesting modest bid ask spreads.
The ETN currently has a Zacks ETF Rank of 3 or 'Hold'.
CurrencyShares Chinese Renminbi Trust (
The newest choice on this comes to us from CurrencyShares and
their FXCH. The product debuted in 2011 and, like others on the
list, looks to track the price of the Chinese Renminbi net of Trust
The Guide to China Bond ETFs
Due in part to the newness of the fund, the ETF hasn't
accumulated a great deal of assets and sees weak volumes,
suggesting a wide bid ask spread. Still, the ETF has the lowest
expense ratio at just 40 basis points a year, implying that it
could be the low cost choice for buy and hold investors seeking
exposure to the Chinese yuan.
This product currently has a Zacks ETF Rank of 3 or 'Hold'.
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MKT VEC-RENMINB (CNY): ETF Research Reports
WISDMTR-CH YUAN (CYB): ETF Research Reports
CURR-CHIN RENMN (FXCH): ETF Research Reports
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