By Eric Dutram of
Many argue that the yuan is severely undervalued against the dollar -- some say by as much as 35% -- and that the currency is long overdue for a revaluation against the greenback. While the recent bill out of the House tries to rectify this imbalance by targeting China and its currency practices, the People's Republic is not exactly thrilled with the passage of the legislation, saying the issue violates WTO rules and that it could "severely damage" relations between the two largest economies in the world. While most do not expect this move to get the Chinese to freely float their currency, it could lead to a small revaluation of the Chinese currency in the near future. The most popular way to play an upward revaluation in the yuan is with WisdomTree's CYB. The fund seeks to achieve total returns reflective of money market rates in China available to foreign investors and changes in value of the yuan relative to the U.S. dollar. The actively managed fund has more than a half-billion dollars in assets, with close to 250,000 shares trading hands every day. Due to the stable nature of the currency against the greenback, the fund has gained just 0.2% against the dollar over the past 52 weeks, far less than virtually all of the other emerging country currencies. The fund does pay out a reasonable dividend, though, and has a correlation with the S&P 500 of just 0.04, suggesting that it moves independently of U.S. stocks. Rydex CurrencyShares Japanese Yen Trust ( FXY)
Quite possibly the most famous example of currency devaluation, at least in this latest round, has been Japan. The Japanese have been selling the yen at a ferocious pace in an attempt to prevent the currency from rising above the 80 yen-to-a-dollar mark. Japan maintains an export-driven economy, so any sharp gains in the value of the currency generally cut into corporate profits and could further drag the economy at a low level of growth. Many in the country view this as unacceptable given the nation's near 20-year economic malaise and the rise of other Asian powers such as China and India that threaten to leave Japan in the dust. In September, the country intervened on the order of 2.1 trillion yen (close to $25.5 billion) to stop the currency's march higher. "I expect the Bank of Japan to closely cooperate with the government and take further necessary policy actions to end deflation," Japanese Prime Minister Naoto Kan said. "We have
Thanks to massive capital inflows from the enormous sale of Petrobras shares, the Brazilian real has been on a tear as of late. It is not just the recent equity offering that has been propelling the Brazilian currency; solid growth, in-demand exports and moderating inflation levels over the past year have pushed many investors into the currency, which has surged by more than 40% against the dollar since the start of last year. In response, the Brazilian government has begun buying massive amounts of dollars -- close to $1 billion a day -- to help stem the rising real tide. "We're in the midst of an international currency war, a general weakening of currency. This threatens us because it takes away our competitiveness," said Guido Mantega, Brazil's finance minister, underscoring just how widespread are the fears over an increasingly strong real and further weakness in the dollar. One ETF to keep an eye on here is BZF, which seeks to achieve total returns reflective of money market rates in Brazil available to foreign investors and changes in value of the real relative to the dollar. The fund has surged by close to 12% over the past 52 weeks and has posted gains of 7% over the past three months. Should Brazil's intervention in the markets fail to take hold, look for this upward trend to continue well into the future. >To see these stocks in action, visit the 3 ETFs to Watch in the Great Currency War portfolio on Stockpickr. >To submit a news tip, email: firstname.lastname@example.org.
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