Yuan trade?

Discussion in 'Trading' started by drukes1234, Apr 9, 2006.

  1. Let's say the Yuan is 50% undervalued -- what stocks would benefit most of the revaluation?

  2. DrChaos


    (1) Good export companies in Japan which compete directly with China. {China is prime competitor, bank of Japan keeps yen low to compete with yuan}

    (2) Australian mineral exporters

    (3) European luxury goods makers
  3. YUM
  4. any of the chinese ADR's: Petrochina (PTR), etc...

    I like FXI, the chinese ETF, which is a mix of mainland china and hong kong shares.

    PGJ is another chinese ETF, but less of a pure currency play as per my understanding. I would prefer FXI (and do).

    You can always do one of the renmibi accounts over at everbank if you're really gutsy.
  5. joesan


    buy Hang Seng Stock Index Futures or HSI at HKFE, if you really think YUAN is 50% under value. But I am not so optimistic. I think our government will not appreciate the currency (Chinese Yuan ) more than 3% within this year. Clearly the central bank guys have learned something from the experience of Japan.
  6. You are probably correct, but think about things from a risk/reward perspective.

    Upcoming meeting between Bush and Hu Jintao on April 20th. Jintao probably views Bush as a out of favor leader, incapable of moving any significant legislation, and therefore of controlling his congress. Protectionist congress leaders want to add a 20-30% tax on imported chinese goods, which Jintao does not want. So, a olive branch - a 10% appreciation in the Yuan or so - wouldn't significantly impact chinese fundamentals (the yuan is estimated to be at least 40% undervalued) and might stave off protectionist tariffs, while bolstering Bush and making everything on the surface appear nice.

    By the way, the precipitous rise on the 30 year bond yields before the meeting is of interest. Either the Chinese are complying with American directives by NOT buying bonds so that the interest rate conundrum can be solved and the yield curve remain normalized while it moves up, or they are flexing their muscles and sending a warning message to the US - cut the protectionist crap or we won't buy your bonds and will send your long term interest rates to the moon. I can't figure out which, but as the trade is the same, it makes no difference.

    So, going long gives you fairly minimal downside risk over the next two weeks, and possibility of a surprise 10% or more revaluation in the currency.

    Looking at FXI, there is probably support at $73, current price is about $77. Upside by that rationale, maybe about $85. So, you risk $4 to make $8.
    The only caveat is that some of that upside may have already been priced into FXI which is at its high.

    Disclaimer: I have a position in FXI.
  7. joesan


    Hu would accept 25% import tarriff and a trade war with US rather than 10% YUAN appreciation. It is about politics: threatening publicly does not work with China. One more question is: US senate probably would not pass the 25% more tarriff bill. A trade war is not wanted by US congress. Two senators who drafted this bill just visited China and delayed the vote of the bill. Anyway, I do believe YUAN will apprciate in the long run, but with a speed much slower than many foreign investors expectations.