Chinese Yuan ETF: Why Its Strength May Be a Good Thing

Usually relying on a weak currency to improve growth, China is thinking about reversing its stance and strengthening its domestic currency. If China goes through with it, currency traders may soon see an appreciating yuan and currency-related ETF.

The Chinese government may let the Chinese yuan appreciate against other currencies, which means better exports and better growth for everyone – except China, reports Jeff Cox for CNBC.

European and U.S. manufacturers would stand to gain the most since their products would be cheaper in China. Revenue would also get that extra kick when exchanged back to domestic currencies. The U.S. trade deficit with China would also diminish, giving the U.S. economy another boost.

Of course, there are drawbacks to a stronger yuan. Higher prices on Chinese goods could push up inflation in the United States and force the Fed to raise interest rates faster than desired. Investors also see that the Chinese monetary policy is a linchpin in the prevention of a trip back to global recession.

Investors can take advantage of the yuan with the WisdomTree Dreyfus Chinese Yuan Fund ETF (NYSEArca: CYB). CYB tries to reflect money market moves in China and changes in the yuan against the dollar. China may soon need to begin a tighter monetary policy to control inflation. Any Fed moves to raise U.S. interest rates will likely be mirrored by China’s boost to the yuan.

• WisdomTree Dreyfus Chinese Yuan Fund ETF (NYSEArca: CYB): up 1.8% year-to-date

Max Chen contributed to this article.

Comments

[Gary A:]

So what exactly is the benefit to the Chinese? Why would they kill their export driven society and seek a consumer driven society that Wall Street would pollute with ponzi mortgage schemes and credit card usury? Why would they do this Tom? seekingalpha.com/insta...

Nov 17 02:21 PM

[CYH:]

I dont really see China devaluing their currency anytime soon like yrs. No point to have a strong currency when most of gen pop is near the poverty line. The US may have it weaknesses but still no one will blink an eye when comes to giving up a buck cant say the same for China. China is growing at 8% ( Skeptical about this) because it needs to not because it can. For now the formula works no sense it changing it.

The only reason China would want a stronger currency is when they start exporting their own goods not contract manufacturing for others and the distribution of wealth is alot more widespread

Nov 18 01:14 AM