Currency ETFs: Chinese Yuan Strengthens to 20-Year High

October 16th at 1:15pm by Tom Lydon

Investors are bullish on the yuan as it has held up against the U.S. dollar despite the weakening Chinese economy. Focused exchange traded funds are a safer way to play the upside of the yuan as it appreciates.

“China’s yuan rose against the U.S. dollar late Monday to the second-highest level ever since the country depegged the Chinese currency from the dollar in 2005, as the central bank continued to surprise the market by guiding the yuan sharply higher after China posted encouraging economic data over the weekend,” Wynne Wang wrote on The WSJ.

Analysts are calling the Chinese yuan a low-risk investment right now. Currently, China is allowing the yuan to appreciate against the U.S. dollar. The yuan has risen 0.4% against the dollar since the start of 2012, following its 0.3% gain last week. The yuan has risen to the 6.28 mark, the first time in about 20 years that the currency has broken to this level, reports Eric Dutram for Zacks. [Currency ETFs: Chinese Yuan]

A stronger yuan will give the country a clean slate, and not be considered a currency manipulator. American exports will benefit from a stronger yuan. Another theory regarding the appreciation of the yuan has to do with the Presidential election. Analysts point out that U.S. opposition over Chinese trade practices could be a danger and if the yuan appreciates in value over the dollar, it will  be harder to manipulate overseas practices.[Currency ETFs: Chinese Yuan May See Higher Volatility]

Chinese yuan focused ETFs are a lower risk investment that stand to benefit both short and long term.As the country tries to balance its economy and avoid trade conflicts with the U.S. investors can benefit from the value of the yuan rising. [What is an ETF? - Part 15: World Currencies]

  • WisdomTree Dreyfus Chinese Yuan Fund (NYSEArca: CYB) This is a good short-term investment grade tool for those investors that want exposure to money market rates in China and the yuan/dollar relationship.
  • Market Vectors Chinese Renminbi ETN (NYSEArca: CNY) This note is open to credit risk and uses rolling, three-month currency futures contracts.
  • CurrencyShares Chinese Renminbi Trust (NYSEArca: FXCH) This low cost ETF is a good choice for investors that want a buy-and-hold investment focused on the yuan. This fund has the lowest expense ratio, 0.40%, of yuan-focused funds.

WisdomTree Dreyfus Chinese Yuan Fund

Tisha Guerrero contributed to this article.

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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