April 15, 2008
Yuan Still Grossly Undervalued
The Chinese Yuan recently broke through the 7.00 level in the spot market. The 12-month non-deliverable forward contract, priced at 6.2864, is looking for over a 10% gain from here. My ability to pursue certain opportunities in the US markets is now being thwarted because I refuse to exchange my CNY into USD.
This chart also explains why the various QDII programs have been abysmal failures — few Chinese are foolish enough to invest abroad given the undervalued yuan.
Cat: | Time: 5:15 pm (utc+8)
April 15th, 2008 at 6:31 pm
At some point of the Yaun’s appreciation the QDII’s will jump into the US markets. Probably a good time to buy stocks now if your stateside. :)
April 16th, 2008 at 1:33 am
Ur comment few chinese foolish enough to invest in QDIi programs due to strong RMB silly. Little to do with RMB and everything to do with the returns made on those funds. Investors got their butts handed to them there. And what do the smart chinese think with their stock market down 40%. Are they lemming up and all piling into a currency play now bc that is smart?? chinese certainly are momentum hounds i give u that.
April 16th, 2008 at 5:14 am
I have an IB account; any suggestions for the best way to get exposure to Yuan? There’s a futures contract for RMB but it doesn’t seem to trade. Anyone taken a position in that? Or is it better to invest in Chinese companies?
April 16th, 2008 at 6:51 am
CM, what do you think about the CNY ETF? my in-laws (chinese) are trying to convince me to buy physical currency in the form of RMB… but i am in favor of holding something that i can trade on demand if need be… so i am thinking CNY is better for me.
any thoughts?
April 16th, 2008 at 6:52 am
@adam: Wrong, lack of interest in QDII has everything to do with the currency … returns on the funds are *not* bad in dollar terms, but when translated back into RMB they are terrible. [UPDATE: Sorry, I’m wrong about this, oops.] As Jimmy Rogers is fond of saying, the Chinese communists are the best capitalists in the world.
@Martin: There’s a CNY ETF now and CNY futures at the CME, but they’re not great (search around the site because we’ve talked about this all before). Investing in the best Chinese companies is a good idea, but it’s very hard for a foreigner to know what’s going on here.
@Born2: You wrote you comment as I was writing mine… I don’t like the fees of that ETF and I’m obsessed with cutting out the middle man. Listen to your money-savvy Chinese relatives. What do you need to trade in and out for?
April 22nd, 2008 at 6:34 am
Martin
I traded the CNY futures. Not a great idea. Bloody roll yield causes almost zero returns. You buy the future (it is priced in reverse to the chart above), and the premium over spot amortises as it moves closer to expiry. So as spot rises, your future hardly moves. That is unless future prices are better than expected today. Chances are not though, as there is a large roll yield already (fut - spot).
June 24th, 2008 at 2:26 am
Since when are the Chinese free to invest in another currency?
Have they lifted the exchange controls?
Also, yuan is not a freely traded currency - it’s exchange is “fixed” by a communist regime at any rate they like.
June 24th, 2008 at 6:27 am
Hypatia: The RMB is fixed against a basket of currencies, the weightings aren’t public but it’s trade-weighted probably. They’re allowing a very gradual appreciation, and it’s up about 20% over the last three years.