Since China has liberalized its rules to allow foreign nationals to own its currency, it seems like direct holdings make more sense than CYB's approach of buying futures. CYB has actually done a mediocre job of tracking changes in the value of the Yuan. Can someone who's bullish on this ETF explain why I should be excited about it too?
True. but that would be complicated. Look for capital controls and witholding taxes which will reducde your return. Having said that, why is that that as the Central Bank continues to tightened by increasing the Reserve Ratio (22%!), and the borrowing rate by another .5%, this ETF goes down? Still long, but this is strange.
Hopefully this fund can be managed to take advantage this:
Yuan hits 17-year high on soft dollar, 2011-7-15
The People's Bank of China set the central parity rate at a record high of 6.4640 yesterday.
"The yuan is strengthening against the greenback on a broadly weaker US dollar on the Fed's hint that a new round of stimulus, or quantitative easing 3, may happen," it said.
The bank also expected the local currency to rise to 6.3 against the US dollar at the end of this year. The local currency has gained 5.7 percent since June 2010, when China resumed yuan appreciation, to deal with the global financial crisis.
I like the CYB approach as it holds US securities and then it swaps them for short term money mkt positions and swaps in the Chinese market. A direct trade into China is still not very transparent to me. So we should get a spike on Monday after China announces at least a 10% apreciation of the Yuan this weekend. You asked for it? you got it? Lets hope they go for 20%.
it is a very inefficient way to track the yuan. Reading the disclosures on this fund, you will find that it tracks the yuan by options and forward purchase contracts which eat u alive in trading costs. The only reason to buy this fund is if u expect a big pop. Slow gradual change, this fund is a loser. Where did u find out that the yuan is up 3.5% in the last six months?
I can think of a real big reason. Regarding the Bank of China, u as an individual purchaser are limited to $20000 per YEAR of purchase of yuan, allowed in increments of $4ooo/day. You will sit there twittling your fingers waiting for the beginning of next year to make your next purchase and bam! the yuan will have been normalized before that. Add to that the uncertainty of putting your money in a foreign bank with no assurance that a fraud could happen and what do u get? Not a very comfortable investment.
pray tell where the average investor can, RIGHT NOW, purchase the yuan? My understanding is that the loosening of restrictions that have recently occurred is meant for companies/individuals who purchase/sell products and commodities to and from China. What bank or investment institution can u go into today and start an account in yuan? Oh sure in a few years u will be, but then the cat is out of the bag and the normalization of exchange will have already occurred.
A woman who answered the phone at the Bank of China (New York) said exchange restrictions do NOT apply to money you have on deposit there, only to cash exchanges. So you may not have to "ease in" as slowly as you thought.