Today, a lot of economists believe that the currency of China is undervalued so that a lot of politicians detest the stubbornness of Beijing to discuss the changes to the longstanding currency policy of this country. However because the importance of China in the global economy has increased, it is expected that a great portion of the world’s GDP growth in this year, the political clout of this country has also increased. Despite the concerted efforts of many world leaders, a review of the recent yuan-dollar peg had seemed much unlikely after Wen Jiabao, the Prime Minister of China, told the Congress of National People that the currency of China would “remain stable”.
Yuan ETF CYB and Yuan ETF CNY
The currency ETFs’ introduction has generated great interest in Chinese Yuan ETF, the trend which is reflected by the great growth of CYB. In early 2009, the fund is still very low, had just less than 100 billion dollars under management; but now CYB has grown greatly to more than 660 million dollars. Recent developments seem to be more likely to send cash to yuan ETF.
Despite a number of the Chinese government’s general unpredictability which can derail the decision and potential disadvantages as well, an upcoming revision of the yuan in the future seems very likely. However, what still remains now is the amount which Beijing would allow the currency to immediately jump by as well as the width of its new trading range. Because the details of these two factors now become very clear, trading in CYB as well as the smaller CNY (Market Vectors Chinese Renminbi) should remain heavier. While these two exchange-traded products have been offering the investors from the U.S.A a way to have a strengthening yuan, still there are some big differences between then.
First, exactly as its name, CNY is structured just like the exchange-traded note; it is an unsecured, senior debt security which issued by Stanley Morgan to track the S & P China Renminbi Total Return Index’s performance. While the Stanley Morgan bankruptcy is not likely, however, CNY comes with a number of credit risks.
On the other hand, CYB is a currency fund which is actively-managed to achieve returns which are reflective of China’s money market rates available to changes of the Chinese yuan’s value related to USD as well as foreign investors. So these fund holdings consist of many different repurchase agreements, government, corporate bonds, T-Bills and currency contracts. This may explain some of the gap of the performance between CNY and CYB, as China’s money market rate is slightly negative.
In addition, there is a slight difference in expenses; CNY charges 0.55% compared to 0.45% for CYB. However, the biggest difference of these two yuan ETF in terms of their underlying holdings is that CYB offers exposure to the China’s money market accounts and CNY is the debt security of which returns are connected to exchange rate.