Bet On The Yuan

Last month's bullish forecast by the International Monetary Fund is another reason to bet on the Chinese yuan. The IMF estimates that developing economies in Asia will expand 8.4% this year, compared with 2.8% growth in the U.S. Overall, the yuan has appreciated 4.92% against the greenback in the past year and many global traders predict the currency will be convertible into other currencies by 2016. More than 50% of money managers surveyed by Bloomberg estimate that the yuan will join the dollar, yen and euro as a reserve currency within a decade.

With inflation running high in China, Beijing is more likely to let its currency appreciate as a tool to help fight inflation. Some analysts believe that the yuan could be undervalued by as much as 40%. Countries like South Korea and Malaysia, whose economies are very closely linked to China, will be willing to let their currencies rise as well. The appreciating yuan can be seen a positive for the entire ASEAN trade-bloc.

For investors, that means betting on the Chinese currency. The WisdomTree Dreyfus Chinese Yuan (CYB) is the largest yuan currency fund and represents the bulk of the assets in the space. Similarly, the Market Vectors Chinese Renminbi/USD ETN (NYSE: CNY) can be used as a play on the currencies appreciation. Additional, yuan currency exposure can be had by buying China's A shares via the Morgan Stanley China A Share Fund (NYSE: CAF)