Foreign Investor Confidence in China’s Currency is High | ETF Trends

As China forges on from the wake of the Covid-19 pandemic, the country’s local currency, the yuan, is gaining confidence from foreign investors. The yuan overtook the dollar as it finished out a strong quarter.

“The yuan is closing out its strongest quarter against the dollar in more than a decade, boosted by optimism over China’s economic outlook and by the country’s comparatively high interest rates,” a Wall Street Journal report noted. “From the start of July through Friday’s close, the yuan has strengthened 3.7% against the dollar. That puts the yuan on track for its biggest quarterly gain since early 2008, FactSet data shows. The only other bigger quarterly gains on record are from the 1970s and 1980s, long before China began reforming its currency market in 1994.”

One of the prime movers that’s feeding into the yuan’s strength is the country’s ability to parry the effects of the pandemic thus far.

“China’s resilience, as the first country to suffer from the coronavirus and then bring it under control, has helped, said Jason Brady, President and Chief Executive of Thornburg Investment Management,” the article added.

“What we do see is a strong Chinese economy, which is part of what’s behind the strong renminbi,” he said, using another name for the currency.

ETF investors who want to take advantage of this boost in the yuan can look at the WisdomTree Chinese Yuan Strategy Fund (CYB). CYB seeks to achieve total returns reflective of both money market rates in China available to foreign investors and changes in value of the Chinese yuan relative to the U.S. dollar.

The fund normally invests at least 80% of its net assets, plus the amount of any borrowings for investment purposes, in investments whose combined performance is economically tied to China. It is an actively managed ETF and will maintain a weighted average portfolio maturity of 90 days or less with respect to the money market securities in its portfolio.

CYB Chart

CYB data by YCharts

An interesting all-world play that hedges against currency fluctuations against the U.S. dollar is the Xtrackers MSCI All World ex U.S. Hedged Equity ETF (DBAW). DBAW seeks investment results that correspond generally to the performance, of the MSCI ACWI ex USA US Dollar Hedged Index.

DBAW uses a “passive” or indexing investment approach, which is designed to track the performance of equity securities in developed and emerging stock markets while mitigating exposure to fluctuations between the value of the USD and the currencies of the countries included in the underlying index. It will invest at least 80% of its total assets in component securities of the underlying index.

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