New Love for WidomTree's Chinese Yuan ETF

The WisdomTree Chinese Yuan Fund (CYB) has been waiting for a day like November 11, 2009. Rather than continue pegging its currency to the U.S. dollar ad infinitum, China’s Central Bank announced “Following the principles of initiative, controllability and gradualism, with reference to international capital flows and changes in major currencies, we will improve the yuan exchange-rate formation mechanism.”

Translation? The Chinese aren’t willing to let their currency go down with the dollar ship.

Keep in mind, back in 2005, the last time that the Chinese allowed for its currency to slowly appreciate against other world currencies, it moved 20% higher against the U.S. dollar. In the midst of the financial crisis circa early 2008, however, China re-pegged its currency to the U.S. greenback to help Chinese exporters.

Now, however, China is ready to resume greater flexibility with its yuan, That’s why volume on the WisdomTree Chinese Yuan Fund (CYB) appears set to trade 10x the number of average shares traded. 10x! And this was supposed to be a slow week with Veteran’s Day!

Typically, the $220M fund trades about 100,000 shares. On 11/11, however, more than 1,000,000 shares traded hands.

Due to its pegging to the declining U.S. dollar, the yuan fund CYB has been losing value; this has been happening since the dollar-funded bull market more or less began in mid-March 2009.

The reason for CYB enthusiasm, then, is a belief that the yuan may increase steadily as its currency is “de-pegged” from the U.S. dollar’s misfortune. Similarly, if you want to base some of your portfolio investing on decision-making by China, review, “ETFs That Track Chinese Government Decision Making.”

Full Disclosure: Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. The company may hold positions in the ETFs, mutual funds and/or index funds mentioned above.

Comments

[Alan Young:]

Seems to me China has made similar assertions before, and then not followed through. What was different today that makes them credible?

Nov 11 04:15 PM

[HarryPS:]

The Dollar is about to crash and burn maybe? :)

Harry

Nov 14 11:41 AM