ETFs to Move on Yuan Devaluation
2
ETFs to Move on Yuan Devaluation - ETF Research News And Commentary China has been hitting headlines this year for one reason or the other. While the economy has been reeling under pressure for long given the protracted slowdown in the domestic manufacturing sector, credit crunch concerns and a property market slowdown, its stock market has been through a wild ride on overvaluation concerns. Meanwhile, the economy’s exports plunged 8.3% year over year in July massively falling short of analysts’ expectation of 1.5% decline as well as the 2.8% drop-off recorded in June. Though 1.3% fall in exports to the U.S. was not that alarming; exports plummeted 12.3% and 13% in the EU and Japan, respectively. These two regions are presently under QE policy and thus see relatively weak currencies against the greenback. This gave the Chinese policy maker a wake-up call that it is high time to devalue its currency yuan to maintain the export competitiveness. As a result, China undervalued its currency yen against the U.S. dollar by a historic amount, i.e., 100 bps on August 11. Yuan has now plunged to the 2012-levels. Per Reuters, China's central bank fixed the midpoint for its currency at 6.2298 per dollar, down from 6.1162 seen on August 10. The bank also indicated that it was eyeing a currency devaluation of 2%. As per barrons.com, the Chinese government viewed yuan as an extremely strong currency. Given the looming Fed policy normalization and its depreciating impact on a basket of currencies, any shift in yuan ‘from market expectations’ seems unreasonable. However, such an epic move in the Chinese currency market will definitely leave an impact across the globe. Below we highlight a few asset classes and its ETFs , which may be among the biggest movers. Currency Needless to say, the move will lead the Chinese currency ETF Dreyfus Chinese Yuan Fund (CYB) to losses while the dollar ETF PowerShares DB US Dollar Index Bullish Fund (UUP) will gain strength. Aussie dollar lost about 1% following the announcement, putting Australia ETF CurrencyShares Australian Dollar ETF (FXA) at risk. Per Reuters, the Australian dollar is often regarded as a liquid proxy for the Chinese currency. China is a major trading partner of Australia and thus the currencies of the duo share a high correlation (read: Commodity Currency ETFs in Trouble as Dollar Resumes Rally). Currencies like the Singapore dollar, South Korean won and Taiwan dollar will be stressed as these countries are manufacturing destinations and thus act as competitors to China on the export front. Market experts apprehend a currency war among these Asian tigers in the near future.
-
Upload
indexcalculation -
Category
Documents
-
view
2 -
download
0
description
http://www.indxx.com/index-development.php - China has been hitting headlines this year for one reason or the other. While the economy has been reeling under pressure for long given the protracted slowdown in the domestic manufacturing sector, credit crunch concerns and a property market slowdown, its stock market has been through a wild ride on overvaluation concerns.
Transcript of ETFs to Move on Yuan Devaluation
ETFs to Move on Yuan Devaluation - ETF Research News And Commentary China has been hitting headlines this year for one reason or the other. While the economy has been reeling under pressure for long given the protracted slowdown in the domestic manufacturing sector, creditcrunchconcernsandapropertymarketslowdown,itsstockmarket hasbeenthroughawild ride on overvaluation concerns.Meanwhile,theeconomysexportsplunged8.3%yearoveryearinJulymassivelyfallingshortof analystsexpectationof1.5% declineaswellasthe2.8% drop-offrecorded inJune.Though1.3% fall in exports to the U.S. was not that alarming; exports plummeted 12.3% and 13% in the EU and Japan, respectively. These two regions are presently under QE policy and thus see relatively weak currencies against the greenback.ThisgavetheChinesepolicymakerawake-upcallthatitishightimetodevalueits currencyyuantomaintaintheexportcompetitiveness.Asaresult,Chinaundervalueditscurrency yen against the U.S. dollar by a historic amount, i.e., 100 bps on August 11. Yuan has now plunged to the 2012-levels. Per Reuters, China's central bank fixed the midpoint for its currency at 6.2298 per dollar, down from 6.1162 seen on August 10. The bank also indicated that it was eyeing a currency devaluation of 2%. As per barrons.com, the Chinese government viewed yuan as an extremely strong currency. Given the looming Fed policy normalization and its depreciating impact on a basket of currencies, any shift in yuan from market expectations seems unreasonable. However, such an epic movein the Chinese currency market will definitely leave an impact across theglobe.BelowwehighlightafewassetclassesanditsETFs,which maybeamongthebiggest movers. Currency Needlesstosay,themovewillleadtheChinesecurrencyETF DreyfusChineseYuanFund(CYB) to losseswhilethedollarETF PowerSharesDBUSDollarIndexBullishFund(UUP) willgainstrength. Aussiedollarlostabout1%followingtheannouncement,puttingAustraliaETF CurrencyShares AustralianDollar ETF(FXA) atrisk.Per Reuters,theAustraliandollar isoftenregardedasaliquid proxy for the Chinese currency. China is a major trading partner of Australia and thus the currencies of the duo share a high correlation (read: Commodity Currency ETFs in Trouble as Dollar Resumes Rally). Currencies like the Singapore dollar, South Korean won and Taiwan dollar will be stressed as these countriesaremanufacturingdestinationsandthusactascompetitorstoChinaontheexportfront. Market experts apprehend a currency war among these Asian tigers in the near future. Gold How much more pain will gold have to bear? The yellow metal already crossed its five-year low level onitswaydownhitbythedollarstrengththankstotheimpendingFedratehike,adeflationary environmentprevailingmostpartofthedevelopedworldandreduceddemandfromthekey consuming nation China because of its waning economy. Now, currency devaluation will likely curb theimportdemandofgoldfromChinaasafeeblercurrencywillturnimportspricier. SPDR Gold Shares (GLD) tracking the gold bullion will bear the brunt the most while the impact will not beunnoticedbythegoldminingETF MarketVectorsGoldMinersETF (GDX)(read:TopandFlop ETFs Post Fed Meeting). Apart from gold, several industrial metals will likely see a negative pricing trend in the near term as theChineseeconomyaccountsforabouthalfoftheglobalconsumptionoftheindustrial commodities and is the second-biggest purchaser of oil. iPath Dow Jones-UBS Nickel Subindex Total Return (JJN), E-TRACS UBS Bloomberg CMCI Industrial Metal ETN(UBM), Elements RogersIntlCommodityMetalETN(RJZ) and UnitedStatesCopperETF (CPER) are someoftheETFswhichmightsuccumbtoaslowdown(seeallindustrialmetalETFshere). Equities AswealreadyknowthattheSouthKoreanandTaiwaneseeconomiesthriveonexports,these nationswillnowbelosingoncurrencycompetitivenesstoChina.ThereareseveralSouthKorean companiesnamelySamsungElectronics,HyundaiMotor,LGCorp.andDaewoowhichhavebig exportmarketsandTaiwanhousesoneofthelargestsemiconductorcompaniesintheworld Taiwan Semiconductor. In short, these two countries stock markets will be hit by yuan devaluation in a passive way. Theseput iSharesMSCISouthKoreaCappedETF(EWY), KoreaKOSPI200ETF(HKOR) aswell as iShares MSCI Taiwan ETF (EWT) and Taiwan AlphaDEX Fund (FTW) in focus. Whilethis move mighthelpsome Chinesesectors and equities,investorsshouldnotethat mostof theChineseequitiesETFsarenothedgedtothegreenbackandthusmayseesomedownward pressure on U.S. exchanges. Some Chinese equities ETFs to watch in the coming days are Market VectorsChinaAMCSME-ChiNextETF (CNXT), MarketVectorsChinaETF (PEK), iSharesChina Large-Cap (FXI) and iShares MSCI China (MCHI).
