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All the talk out of China about allowing a stronger yuan to assist in the battle against inflation is backed up by the 0.9% increase in its value in April, by far the biggest jump in several months. The rise sine June 2010, when the PBOC dropped its peg, is 5.2% vs. announced expectations for a 3% Y/Y rise.
"Our economy is far from where we would like it to be," says Fed chief Bernanke at a conference about the challenges facing lower/moderate income communities. Gold likes what it hears, now surging 2% to $1,562/oz. The dollar plumbs fresh 30-month lows.
Despite the usual rhetoric about the desire for a strong currency, U.S. officials seem unconcerned with the weakening greenback. The current decline in the dollar isn't out of line with 3 of its other recent bear markets. The only problem is 2 of those 3 moves ended with major financial panics.
The one way bet on China's currency continues, the yuan completing its 7th straight weekly rise vs. the greenback to its highest level in nearly 2 decades at CNY6.49. There has been much recent chatter at the highest levels that a stronger yuan could help the inflation fight.
Rather than deciding on whether to bet on China or take a punt with India, smart investors should seek exposure to both: "Picking one and leaving out the other would be a high-risk strategy," one strategist says. The good news: Both of the world's most populous countries can point to powerful population trends that bode well for continued strong growth.
With "much of the impact of higher (commodity) prices is still in the pipeline," World Bank economist Louis Kuijs says "it's too early to stop the macro tightening" in China. His colleague Ardo Hansson suggests a one-off revaluation of the yuan, "the more quickly you do it the more impact you get."
FX markets yawn as Treasury Sec. Geithner defends the greenback, saying "we will never embrace a strategy to weaken the dollar ... our policy has been and will always be, as long as I will be in office, that a strong dollar is in the interest of the country."
China moves to nip social unrest in the bud by cutting or removing port fees for truck drivers in response to their strike over the levies and increased fuel costs, Xinhua reports. While the economic effects of the protests aren't 'serious', says one economist, China's efforts to control inflation “don’t provide very much immediate relief to those people like truck drivers."
Chinese truckers protest for a third day in Shanghai over rising fuel costs, disrupting the flow of goods and even beginning to curb exports. The government is acutely concerned that increasing prices could fuel Middle East style protests, but its efforts to tame inflation are yet to do the trick.
Fears about U.S. debt sends China's yuan to another high against the dollar as it hits CNY6.5067 compared with 6.5205 late yesterday. Capital Economics says the yuan is still undervalued and expects it to finish the year at CNY6.20 to the dollar.
The Fed's Real Broad Trade-Weighted Dollar Index drops to 40 year lows. Chart readers have a look - either a trend line has been broken with the next stop zero, or the greenback has hit resistance and is due for a serious bounce.
A series of comments in recent days is leading to speculation the Chinese will allow faster appreciation of the yuan or even a significant one time revaluation. However, even proponents of a stronger yuan aren't buying it. "The economics make sense, but politically it would be impossible to get agreement."
A moment of pause for those clamoring to invest in China: a Bain study says a high percentage of rich Chinese are interested in moving themselves and their cash out of the country. The famous Chinese appetite for risk seems to have morphed into a desire to secure wealth.
Stephen Gallo suggests comments from PBOC Gov. Zhou Xiaochuan that Chinese reserves have exceeded a "reasonable" level may be the most important event of the week. Just possibly, authorities are losing patience with efforts to reign in liquidity and are ready to allow the yuan to revalue.
PBOC Deputy Gov. Hu Xiaolian says there is "considerable room" for further hikes in bank reserve ratios. Interestingly, she notes these increases do not affect bank operations, but are instead to soak up liquidity from foreign direct investment. FDI earlier.