I think the yuan is about to appreciate dramatically with respect to the USD in the next few months. Do you guys agree? Would you invest in yuans? Also, if I were to do it, what's the best place to do the exchange? Where can I get the best rates?
I have 0 experience in doing this, so this is very important and informative to me.
Thanks a lot
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It wasn't until probably a few weeks ago when Chinese government allowed foreigners to invest in Yuan... so if you visit Bank of China branches in New York or LA, they let you make a deposit up to $50,000/year I think.
However, appreciate dramatically? I doubt it.. The entire point of Chinese system is stability. IMHO, there won't be anything dramatic.
On the other hand, BoC NY is FDIC insured while BoC LA is not.. one thing to note.
You say that you think the yuan will dramatically appreciate... but why? I'm not saying I agree or disagree, but I'd like to hear your thesis.
It's pretty common knowledge that if the yuan were to be a freely-traded currency, it would appreciate against the dollar fairly significantly. However, it just isn't freely-traded -- and I don't think it will be for a while.
China will only allow the currency to appreciate when it benefits China -- not due to some political pressure from the USA. I wouldn't invest in the yuan right now against the dollar because I think that you'll be able to get some better returns through a different medium. Also, China has been known to do some pretty drastic things with its currency (i.e. when they devalued it by 1/2 back in the 90's), so I wouldn't want to put on that kind of risk.
So in short -- no, I don't think it's a good idea.
I wouldnt put money on an appreciating Yuan hugely over the next couple of months just because as has been said do you want to fight the Chinese government.
It seems that the Bank of China method is the most accessible, but I personally wouldn't feel safe with that, just because theres prob rules in case of a huge yuan appreciation and I would need to know red tape is minimal.
Why wouldn't you just trade the CNY NDF on Interactive Brokers (not sure if this is possible, but I would expect it to be)? You also get the benefit of leverage via the NDF which would amplify the return of what is likely to not be a huge appreciation.
I think it is pretty far-fetched to make the argument that the CNY will "appreciate dramatically" in the next few months, but do agree that it will appreciate eventually. The argument that it is undervalued is not sufficient to argue that it will appreciate - as it has been undervalued for nearly a decade and it hasn't appreciated dramatically. China has built up an export-oriented economy where its state-owned enterprises (SOEs) rely on both artificially low borrowing rates and an undervalued exchange rate (both set by the state) in order to maintain profitability. China's recent failed attempts to crack down on the volume in lending to curtal a potential credit fueled bubble lead me to believe that they will raise lending rates to try to curtal speculative borrowing/investment. For the state to simultaneously appreciate the CNY and raise borrowing rates would put significant pressure on the export-oriented SOEs and run to the state's goals of economic stability.
I think your point on the political nature of the situation is valid, but I don't really think Hu will bow to external pressures. There are many other ways he can appease external geopolitical pressures without appreciating the CNY (piracy of software, human rights, meat imports, et al.).
I believe that one valid (or at least logical reason) for China to appreciate the CNY would be to alleviate inflationary pressures. Around 50% of the CPI goods basket in China is food, much of which is imported, and a higher CNY would reduce the price in CNY for foods for much of the population. However, this argument only holds if China cares at all about its poorest citizens and it has made it relatively clear for awhile that it doesn't (an undervalued CNY and negative real rates amount to a transfer of wealth from citizens to SOEs).
For full disclosure: I work at a large global macro fund and also hold long CNY positions in my personal account.
I agree with yahoo's line of reasoning on inflation. I believe that blasting China with inflation to pressure them into appreciating the CNY is part of the justification for QEII.
However, it is not necessarily China's poorest citizens that are suffering right now. The poorest are the farmers in the inner provinces, but they are actually benefiting from the rising prices. It is the lower middle class city-dwellers that are inherently short all food and energy commodities and have the most to lose. These workers are now starting to demand higher wages in order to counter their rising costs of living. As there is not much surplus labor left that is willing to work in those conditions, the workers are gaining bargaining power and getting the ball rolling on a classic price-wage inflationary spiral.
I do think that China is concerned about the growing gap between rich and poor. Historically, China has always had a hard time maintaining a centralized and unified government because of the continual disparity of wealth between the agrarian inner provinces and the mercantilistic coast. Being well aware of this inescapable fact, I would expect the communist party to be very concerned about the inflation problem. My view is that they will try everything possible (look at the continued upward reserve requirement adjustments) before finally caving on the currency. In the end, the SOEs will get crushed from both sides (wages and the currency).
You can also invest in China's stock market. Not a bad time IMO.
Invest in Chinese real estate. Double effect of rising RE prices and Yuan appreciation (once you pull out your money)....
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