The WisdomTree Dreyfus Chinese Yuan Fund (NYSEArca: CYB), Market Vectors Chinese Renminbi ETN (NYSEArca: CNY) and the CurrencyShares Chinese Renminbi Trust (NYSEArca: FXCH) have been decent performers among currency exchange traded funds, but investors should be careful if betting those good times will persist.
Investors should also be mindful of the fact that some well-known members of the smart money crowd are eagerly betting against the Chinese currency. Kyle Bass’s Hayman Capital Management has sold off the bulk of its investments in stocks, commodities and bonds so it can focus on shorting Asian currencies, including the yuan and Hong Kong dollar,” according to MarketWatch.
David Einhorn’s Greenlight Capital, Stanley Druckenmiller and hedge-fund manager David Tepper are among the big names on Wall Street that are yuan bears.
“What’s more, it’s unclear whether bearish yuan trades will turn into the big money-makers that many funds are now counting on. The yuan has rebounded 1.1 percent from this year’s closing low on Jan. 8, with policy makers saying there’s no basis for another sharp depreciation,” reports Saijel Kishan for Bloomberg.
CNY, an exchange traded note, follows price movements between the yuan and USD. This note is open to credit risk and uses rolling, three-month currency futures contracts to provide exposure to the exchange rate of the Chinese yuan to the U.S. dollar.
FXCH maintains a deposit account denominated in Chinese renminbi, and interest earned will be used to pay expenses and any left over will be distributed to shareholders. [Violent Turn for Yuan ETFs]
Stronger export numbers, or decreases in imports, help strengthen a domestic currency. Higher exports means increased demand for yuan-denominated goods, whereas lower imports translates to lower Chinese demand for foreign-currency-denominated goods.
Chinese monetary policy move may also signal a start to the country’s move toward reforms – many have criticized China’s currency policy, arguing that the central bank has artificially strengthened the yuan.
Market Vectors Chinese Renminbi ETN
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.