Currency ETFs: Chinese Yuan

May 8th at 6:00am by Tom Lydon

The Chinese yuan has been artificially weakened against the U.S. dollar as China engaged in a decade long export-driven strategy for economic growth. However, China is beginning to shift towards domestic expansion, and the yuan, along with the currency related exchange traded funds, may finally appreciate closer to a fair market value.

China is beginning to adopt policies toward focusing on domestic growth, as demand for Chinese exports have weakened following the 2008 financial downturn, according to a Barclays research note.

Consequently, the total trade imbalance between China and the U.S. has dropped to between 40% and 50% of the total U.S. trade deficit from up to over 80% before 2008.

“We can take this as evidence that, while the two countries’ trade-weighted exchange rates may now be closer to ‘fair value,’ the Chinese currency is still undervalued relative to the U.S. dollar,” Barclays said in a note.

Since 2008, the Chinese government has allowed the renminbi to appreciate against the U.S. dollar at an annual rate between 2% and 3%.

In mid-April, the People’s Bank of China announced that it would double the daily trading band to 1% on currency trades. [Currency ETFs: Chinese Yuan May See Higher Volatility]

“From a longer-term perspective, this is good news as another indication that the Chinese are actively pursuing their new macroeconomic strategy of stimulating domestic demand,” Barclays added. “It is too early to tell whether the recent band-widening signals a more rapid appreciation of the Chinese currency in the near term.”

Investors may access the Chinese currency through exchange traded products:

  • WisdomTree Dreyfus Chinese Yuan Fund ETF (NYSEArca: CYB)
  • Guggenheim CurrencyShares Chinese Renminbi Trust ETF (NYSEArca: FXCH)
  • Market Vectors Chinese Renminbi/USD ETN (NYSEArca: CNY)

WisdomTree Dreyfus Chinese Yuan Fund ETF

For more information on the Chinese currency, visit our Chinese yuan category.

Max Chen contributed to this article.

Read the disclaimer; Tom Lydon is a board member of the funds for Guggenheim Investments.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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CYB FXCH