Chinese Yuan

RATM

Im reading more and more articles about this currency (but Im not a Forex trader and know nothing about it). For a long time now analysts have being saying it is undervalued and the US Treasury is keen to see it value its actual value. The Beijing govermemnt seem to use the currency as a to annoy the Americans as it makes Chinese exports ridiculously cheap.

Im remember being in Beijing in 2002. At the time 1 euro bought me 8 yuan. Now today 1 euro will buy me 8.84 yuan. This is despite the fact that China has been booming for nearly a decade now. AFAIK the currency is pegged to the US$ and isn't floated independently- they loosened it slightly before the G20 summit but it fell well short of an actual floatation. The Chinese appeared to be appeasing the Americans on the eve of a major political summit but nothing more and the markets treated it as such.

Now atm I have 5k knocking about my account and Im not that happy with the interest rate being realised. Im off to China in a few weeks and Im thinking of sinking around half of this 5k into yuan and bringing it home. My hope would be that eventually the US Treasury forces the Chinese hand and the currency has to be floated, thus giving it a true valuation.

As I said I have no experience in Forex so if anyone could point out the holes in my reasoning I would appreciate it alot. My thinking of this as a 2-3 year investment is as follows:
Worst case scenario: Yuan stays pegged at its current level and I just about get my money back.
Best Case: Yuan gets revalued to 10-1 on the euro and I make 20% yield and then get out.

According to this the yuan may be undervalued by between 25 and 40%.
http://www.reuters.com/article/idUSTRE65I11B20100621

Im thinking about it and it just seems too easy so Im wary. What Im asking is what other factors do I need to take into account? Is it worth a punt ?

Bullish

Yuan (RMB) is not legal tender outside China. You have no way of converting it back to Euro unless you travel back to china at least that was the case the last few times I have been there.
http://www.x-rates.com/d/CNY/EUR/graph120.html

Best of luck on the trip

MrMatisse

I think you would actually have to hold the notes as I dont think its tradeable on those forex websites but am open to correction.You could convert it back into euro in Thomas Cook at the bottom of Grafton Street.Prob have to knock it into sterling and change it up the north now.

Id be wary of investing in it. It will never be left to the free markets to appreciate by 25% etc as this would wreck the Chinese economy which is already experiencing huge inflation.
Unless the Chinese government allows a 40% currency appreciation within 3 years in a country relying totally on exports that has an inflation problem and massive graduate unemployment you wont make any money.

The government has huge foreign currency reserves so can maniuplate the currency for a long time.

A very High risk investment.

RATM

Thanks for the advice guys, I'll stay well away. The conversion problems wouldn't make it worth my while and the other factors that Really-Stressed outlined mean it is way too risky.