Nouriel Roubini Says Buy CNY, CYB

May 14, 2009

Well, not really. But Roubini, the NYU professor who forecast the current credit collapse, does think that the Chinese currency is ascendant.

He lays out his case in an op-ed in today's New York Times

"The 19th century was dominated by the British Empire, the 20th century by the United States," he writes. "We may now be entering the Asian century, dominated by a rising China and its currency."

He goes on to suggest that the Chinese renminbi (aka yuan) could become the new reserve currency of the world over the next 10 years.

"Traditionally," he explains, "empires that hold the global reserve currency are ... net foreign creditors and net lenders. The British ... pound lost its status as the main global reserve currency — when Britain became a net debtor and a net borrower in World War II. Today, the United States is in a similar position."

He predicts doom and gloom for the greenback, and merriment for the yuan.

For ETF investors, that means one (or rather two) things: Buy CNY or CYB. Those are the Market Vectors - Renminbi/USD ETN (NYSE Arca: CNY) and WisdomTree Dreyfus Chinese Yuan ETF (NYSE Arca: CYB), respectively. Both offer 1-for-1 exposure to the value of the Chinese currency.

Sounds like a no-brainer, right?

Well, maybe. I hear investors talking about these products all the time, and I'm not sure everyone understands them.

The Chinese currency is not a free-floating currency. Rather, it's designed to trade at or around a basket of other currencies, dominated by the U.S. dollar, euro, Japanese yen and South Korean won. The Chinese government has, for the past few years, allowed its currency to appreciate ... some ... against the dollar. But for most of the past year, it's been stuck essentially at a peg to the U.S. dollar of 6.8 yuan per dollar.

Because of that peg, an investment in CYB or CNY has been markedly un-exciting. Since debuting about one year ago, it's gone up about 4% ... about what you'd get in a CD. And it's just about a flat line over that stretch.

Investing in China's currency sounds sexy, but the bet with these products is a long-term one. If you buy, you're betting that Nouriel Roubini is right, that the renminbi is ascendant, and that eventually China will be forced to further relax trading restrictions on its currency.

If that happens ... some might saywhen  that happens ... the products could get very exciting indeed.

BTW: One note on Jim's blog regarding Claymore buying Rydex: I like the idea of someone buying Rydex, as that's an interesting franchise with some very interesting ETFs in it. The Rydex S&P 500 Equal-Weight ETF alone (NYSE Arca: RSP) may be worth the price of admission, as a lot of advisers find it a useful way to move down the cap spectrum while sticking with ultra-liquid names.

Another interesting purchase would be a company like RevenueShares, whose products have turned in some tremendous performance recently and which are gaining some credence as core holdings. That's just idle speculation, though: There's not even a rumor about that in the marketplace.

I guess we'll see.

 

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