ETFs to move on Yuan devaluation

China has been hitting headlines this year for one reason or the other. While the economy has been reeling under pressure for long given the protracted slowdown in the domestic manufacturing sector, credit crunch concerns and a property market slowdown, its stock market has been through a wild ride on overvaluation concerns. 

Meanwhile, the economy’s exports plunged 8.3% year over year in July massively falling short of analysts’ expectation of 1.5% decline as well as the 2.8% drop-off recorded in June. Though 1.3% fall in exports to the U.S. was not that alarming; exports plummeted 12.3% and 13% in the EU and Japan, respectively.

These two regions are presently under QE policy and thus see relatively weak currencies against the greenback. This gave the Chinese policy maker a wake-up call that it is high time to devalue its currency yuan to maintain the export competitiveness. As a result, China undervalued its currency yen against the U.S. dollar by a historic amount, i.e., 100 bps on August 11. Yuan has now plunged to the 2012-levels.

Per Reuters, China's central bank fixed the midpoint for its currency at 6.2298 per dollar, down from 6.1162 seen on August 10. The bank also indicated that it was eyeing a currency devaluation of 2%. As per, the Chinese government viewed yuan as an extremely strong currency. Given the looming Fed policy normalization and its depreciating impact on a basket of currencies, any shift in yuan ‘from market expectations’ seems unreasonable.

However, such an epic move in the Chinese currency market will definitely leave an impact across the globe. Below we highlight a few asset classes and its ETFs, which may be among the biggest movers.

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