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Investing in the Chinese Yuan

It’s natural to want to invest our money in commodities or stocks that have the potential for growth.  After all, we want our money to work for us, not just sit there collecting abysmal interest rates in a savings or money market account.  One of the ways to make your money grow is by investing in foreign currency and the Yuan gives indications that it will be growing very soon. 

China has one of the fastest growing economies in the world, second only to Japan.  With $700 billion in their reserves, China is an economically healthy country, too.  However, the Yuan is undervalued 20-40% due to their attempts to both control inflation and maintain their competitive edge over the rest of the world.  The Yuan is very influential; in fact, the huge US trade deficit has been greatly influenced by the artificially weak Yuan. 

There are a few ways you can invest in the Chinese Yuan: There are currency exchange traded funds, or ETFs, these funds trade notes that expose you to the exchange rates of foreign currencies.  You choose a specific country ETF such as China or Hong Kong.  Two of these country ETFs are:

iShares MSCI Hong Kong Index (EWH)
iShares FTSE/Xinhua China 25 Index (FXI)

You may want to know about specific trading companies that you can use to invest in the Chinese Yuan.  One of those is Market Vectors Chinese Renminbi/USD ETN (CNY).  This is an unsecured debt instrument that Morgan Stanley issues.  It mainly reflects movements in exchange rates.  WisdomTree Dreyfus Chinese Yuan Fund (CYB), on the other hand, reflects yields and exchange rate movements on a Chinese money market account.

You can also open an account at the Bank of China, which has three branches in the US.  Using your account you can deposit up to $20,000 per year and receive Chinese Yuan in return.  You will have to open the account personally, either in New York or Los Angeles. 

Another way to invest in the Yuan is to buy Chinese stocks.  According to many market consultants consumer goods stocks are a good investment and they will increase as the Yuan grows stronger. 

Before you make any investment it is always a good idea to consult with an expert in the field.  The small consultation fee could be the best investment you’ll ever make.  Remember:  knowledge is power and much more profitable than ignorance!

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Modified:02/02/2011
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