How to buy Chinese Yuan

China’s currency is still undervalued by some 40 percent. Here are three quick and easy ways buy yuan if you’re considering the currency as an investment.

The Chinese yuan or renminbi has risen about 5 percent a year over the past five years, and some investors argue that China’s currency is still undervalued by 40 percent. If the dollar suffers from decreasing purchasing power in the coming years, the yuan could rise rapidly, and that’s got a lot of people looking at the currency as a potential investment (or at least a safe haven). Here are three ways to buy Chinese yuan:

1) Open a savings account with a Bank of China branch that’s based in the U.S. The Chinese government has finally started allowing Americans to invest in the yuan via savings accounts, according to the Wall Street Journal. Visit one of two Bank of China branches in New York (or the branch in L.A.), and you’ll be able to start a yuan-based savings account where you can deposit up to $20,000 a year in $4,000 per day increments.

2) Buy Chinese Yuan currency ETFs. There are at least two ETFs/ETNs that track the yuan. The WisdomTree Dreyfus Chinese Yuan Fund (ETF) (NYSE:CYB) is the most active with an average of 210,000 shares changing hands every day. The second, Market Vectors Chinese Renminbi/USD ETN (NYSE:CNY), has an average trading volume around 62,000 shares per day. The ETFs have largely traded flat since their inception. So long as the yuan remains loosely pegged to the dollar, this probably won’t change, but if the ties between the yuan and the dollar become strained, I expect these two stocks to appreciate quickly.

3) Invest in a Renminbi Non-Deliverable Forward (RMB NDF) currency exchange derivative. That’s a mouthful, but it’s actually one of the most interesting (and cheapest) ways to invest in the yuan. Offered by HSBC Holdings (NYSE:HBC), NDFs let you exchange a “pre-determined amount of Renminbi at a set exchange rate on a fixed date in the future.” If you think the yuan’s going to go up, you can buy expected Renminbi. If you think it’s going down, you can sell expected Renminbi.

This type of derivatives contract has a couple advantages: You just need to put down 25 percent of the contract amount as lien. The minimum contact amount is $10,000, which means you’d only tie up $2,500 in your investment. One bonus: no Renminbi changes hands as all transactions are settled in US Dollars. That means you’re not limited in how much you can buy or sell. You just have to find a buyer or seller and come to an agreement on an exchange rate that you’re comfortable with.

It’s hard telling where the yuan will be a year or two from now, but it’s even harder to imagine that the yuan will go down in that time.



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Citigroup pulls shank on HSBC

Citigroup (NYSE:C) has raised the stakes in China where they’re taking on HSBC (NYSE:HBC) and Standard Chartered (LON:STAN) for supremacy.

Battle lines are being drawn between two of the biggest banks in the world: Citigroup, Inc. (NYSE:C) and HSBC Holdings, PLC (NYSE:HBC). It’s an American bank vs. a European one, and the fight’s over an Asian country: China.

China opened up to foreign banks in 2006, and ever since that time, just about every banking giant in the world has been struggling to get a foothold there.

“We have aggressive consumer banking expansion plans and want to open branches as fast as regulators in China will let us,” Citigroup’s co-chief in Asia, Stephen Bird, told Bloomburg.

Citigroup has just 29 outlets in China. That puts it in third place behind HSBC (102) and UK bank Standard Chartered (LON:STAN), which has 59. Citigroup’s just announced they’re putting more chips in the pot, though, with aggressive plans to hire 12,000 more people in the country over the next three year.

What does it mean for investors? Better performance. In 2008, Citigroup posted a 46 percent revenue increase. 2009 stats aren’t available, but in general banks have clocked more than 20 percent returns on equity in China. That’s far better than their returns in developed markets like the U.S., and it just might prove to be the savior for a fallen giant.

Top five biggest bank stocks in the U.S. by market cap

The roiling financial markets in the U.S. have knighted new winners and demoted the old guard. What are the top five biggest banks in America?

The roiling financial markets in the U.S. have knighted new winners and demoted the old guard. What are the top five biggest banks in America?

Bank of America Corporation (NYSE:BAC) $132 billion
JPMorgan Chase & Co. (NYSE:JPM) $149 billion
Wells Fargo & Company (NYSE:WFC) $129 billion
Citigroup Inc. (NYSE:C) $111 billion
Goldman Sachs Group, Inc. (NYSE:GS) $72 billion