[RandDisciple]

In a recent Economist magazine they state that the Chinese Yuan was possibly 50% undervalued to the U.S. dollar. Historically, currencies with the highest economic growth and a large trade surplus have appreciated. Therefore, it would seem that the Yuan is a good currency to diversify into out of the dollar. However, it is supposedly not readily convertible at this time.

Does anyone have any idea of how you could gain Chinese Yuan exposure (bonds, etc.) or possibly accomplish the same thing by investing in a proxy of the Yuan? (Taiwan, Hong Kong, etc.?).

[SAJ]

As a general thing, you can't -- or at least not directly. It's not only not 'readily' convertible, outside of international contracts approved by the PRC government, it's not convertible at all. (Well, I suppose you can exchange USD for RNB with cabbies and desk clerks and so forth).

Taiwanese dollar is not a surrogate for renminbi; Hong Kong dollar is maintained by PRC as an economic convenience, to accommodate pre-existing contracts. I haven't tracked its performance vs. USD since the 1997 takeover, sorry (I've lived in Communist nations -- rule 1: do not do business with them unless you're simply TOO big for them to screw over like, say, IBM; rule 2: see rule 1).

Also, foreigners aren't allowed to directly own shares in PRC companies (which would be the obvious way to bet on an appreciation in RNB). One has to jump through some number of hoops to do so, and, frankly, I don't know what those hoops are, these days.

Be advised, though, that if you do seek ownership of sundry Chinese shares, there is absolutely ZERO transparancy in their stock markets and regulations.

Here's something worth trying: I have, on occasion, e-mailed questions to various folks on The Economist and have received a rather surprisingly high proportion of responses. Might as well have a go -- the price is certainly right. Might try South China Morning Post, as well.

No matter what, though, you'll have to be patient. PRC has no intention of making renminbi convertible any time soon.

FReegards!