investing in Yuan?

It's a controlled currency so I suspect this is difficult.

I checked Everbank.com and didn't find a Yuan deposit account or CD.

You might find a Chinese government bond out there, but I imagine most that you can buy pay in dollars.

Another possibility is to buy an ETF on the Hong Kong market. Just as an example:

Neither is a 'pure play' on the Yuan, but are likely to have some positive correlation with a rise in the Yuan.

Investing directly in Chinese markets is tricky, as you can see from last week's performance. Foreigners are not (I believe) allowed to own many of the stocks, and the market is highly speculative.

The HK dollar is pecked to the US dollar.

Do you mean pegged to the yuan? Both are tied to the US dollar, right, at least unofficially. But that may change. That would be the reason to invest in the yuan.

~M

isn't is vastly more likely that the Yuan will be devalued relative to the Dollar than vice versa? that would be the reason NOT to invest in the Yuan.

On Mar 6, 8:36 am, "Gil Faver" Dollar than vice versa? that would be the reason NOT to invest in the Yuan.

I dont think so. I think the yuan is undervalued and the chinese are keeping it that way to keep their goods affordable. when the yuan finally goes up, as it must, chinese comapnies will lose money as their products become more expensive in the us. so investing in a company doing business is yuan is not the same as investing in the yuan. but I cant see how to do it.

~M

On Mar 6, 8:36 am, "Gil Faver" Dollar than vice versa? that would be the reason NOT to invest in the Yuan.

There is an active market for institutional investors in "non- deliverable forwards" in the Chinese yuan, and their prices indicate that the market expects the yuan to gradually RISE, not fall, versus the dollar. China has a big current account (CA) surplus, and the U.S. has a big CA deficit. Other things being equal, there is a tendency for currencies with surpluses (deficits) to appreciate (depreciate). This effect is often masked by the fact that countries with CA deficits (the United States, U.K., New Zealand for example) typically have higher interest rates than those with surpluses (Japan and Switzerland) -- one needs to adjust for interest rates to discern the effect of CA on exchange rates in historical data.

No the HK dollar is officially pegged to the US dollar, not to the yuan.

Its not that the interest rates mask the other tendancies, interest rates reflect the disirablitiy of holding a currency. a country that wants to make its money worth more raises theinterest rates, and vice versa, so if two countires want their currencies to stay the same compared to each other, and the value of one countrys currency drops, that country has to raise interest rates.

~M

Mary

We've had huge discussions on misc.invest.mutual-funds about what drives exchange rates. See anything posted by Jose Bailen on the subject (he was an economist for the IMF).

I would say that, broadly, what Beliavsky says is right. The thing about individual countries and their interest rate policies is that whilst what you say is very true of small countries with big exports and imports (think Canada, or Sweden) it is less true of big countries which set their interest rates more as a result of domestic conditions (especially the US).

I think it's fair to say there is a market consensus the Yuan must appreciate, and a consensus that it will only be allowed to do so gradually, as the Chinese government fears most of all the impact on domestic job and wealth creation of a rapid rise in its currency.

Which multiplies the risk the market consensus is wrong, and the adjustment is quicker than expected.

I suggested the Hong Kong market. In terms of currency, that judgement is *wrong*-- I had forgotten the US dollar peg. In terms of stocks, I still think Hong Kong companies are mostly preferrable to Chinese ones: plays on the same factors (especially real estate prices), but with higher standards of transparency and corporate governance and generally lower PE ratios.

In terms of companies and stocks, a revaluation of the Yuan is likely to hurt Chinese companies quite a bit, particularly if it is sudden or unexpected-- share prices will drop (from current levels which are already inflated) as the market will expect worse performance by Chinese exporters.

Commodity exporting countries might also do poorly, if the market expects Chinese production to be reduced as a result of an appreciation: I am thinking here of the Australian dollar in particular.

Countries and currencies that compete with China in exporting (South Korea, Taiwan, Japan) might do relatively well in a Yuan appreciation scenario.

I don't think any of us has found a Chinese Yuan deposit account-- - probably because it is a controlled currency.

There may be some bonds out there that pay in Chinese Yuan, but I suspect the same restrictions apply.

So I guess the consensus is that theres no way to invest in the yuan, very odd. just out of curiosity, what happens if a tourist goes to china and actually buys yuan and tries to bring them back out of the country? Never mind import declaration requiments, will china let the yuan leave, legally?

~M

Or we haven't thought of one-- as I say, there might be bonds or deposit accounts I don't know about. Before the 1990s this situation was very common in the world. Indeed in the UK up until the 1970s, the maximum you could take out of the country at any one time was £100.

Countries like Cuba and Syria it is still the case.

just out of curiosity, what happens if a tourist goes to

I think legally you cannot take them out.

Of course people do, and there is a grey market- -currency traders will buy them.

But this is small amounts, in total. the big numbers are Chinese exporters and citizens, who must, legally, convert their dollars into Yuan at the bank.

I can tell you the prices in the airports are set to mop up any spare yuan you might take to the airport ;-)!

Not really. Why is it odd? I don't think the Yuan (or RMB) is the only currency not freely traded.

Legally there is a restriction of how much you can take out of the country (just like the US). Afterall millions of Chinese tourists go to HK and Macau, and both will accept RMB as currency (eventhough both are really Chinese, they have their own currencies).

I don't recommend it, but you can SPECULATE on the yuan, up or down, by trading Chinese Renminbi/us Dollar Futures on the Chicago Mercantile Exchange

. The contracts are cash settled.

Exchange

. The contracts are cash settled. I suppose one could therefore construct a straddle position? ie limiting one's losses to say, 10%?

(I'm equating futures markets to option markets in this case, which I realise is wrong).

Exchange

. The contracts are cash settled. How is it possible that theres a futures market in something that cant even be obtained?

~M

Exchange

> . The contracts are cash settled.>

It's possible because the contracts are cash-settled -- there's nothing that needs to be obtained.

Exchange

> . The contracts are cash settled.>

As Rich explains below (above) it works if:

- both sides of the transaction trust each other (or the exchange)

- the physical commodity (in this case Yuan) never trades hands

In the case of the world's largest bond markets (Japanese Government and US Treasury) Futures trading far outweighs actual cash trading of bonds. The normal portfolio manager decision is to simply roll the position (as futures) rather than ever taking cash or buying bonds.

Commodity markets work similarly-- relatively few transactions involve taking physical delivery of the commodity.

'grey' markets are quite common, and quite useful, in that they give useful information and help bound the size of true black markets. It would be enormously useful for example, if we could construct grey markets in heroin, marijuana and cocaine- 1 pound of Columbia Gold, Harlem Street Price, as an example deliverable. It would tell us a lot from a public policy point of view.

If we ever get round to petrol rationing, I imagine there will be a 'white' market in petrol rationing coupons.

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