WisdomTree says yuan may be undervalued by 35%

The People's Bank of China has kept the yuan little changed since July 2008, after a 21 percent gain in the previous three years, to help exporters cope with sliding demand during a global recession. U.S. President Barack Obama last week said he emphasized in talks with Chinese counterpart Hu Jintao the need for the market to set the exchange rate.

“As things settle down the government will let it appreciate,” Steinberg, who helps manage an exchange-traded yuan fund, said in a television interview with Bloomberg News Tuesday in Singapore. “It could be something like 30 to 35 percent undervalued, but the Chinese government will only allow it to appreciate slowly over time.”

The yuan was little changed at 6.8285 per dollar as of 12:58 p.m. in Shanghai, from 6.8301Monday, according to China Foreign Exchange Trade System. The U.S. Dollar Index traded on ICE futures in New York, which tracks the currency against those of six trading partners, has slid 6 percent in the past six months.

“Our China currency fund is taking in a lot of money recently as have a number of our other emerging-market currency funds,” said Steinberg, who is based in New York. “The weaker dollar has made people very conscious of the change in currencies.”

The Wisdomtree Dreyfus China Yuan Fund has increased in the current quarter to US$400 million from US$200 million in the previous three months, Steinberg said.

“The nice thing about the Chinese currency is people think there's no downside to it,” he said. “I don't know a single person in the world who thinks it's overvalued. As long as the dollar falls, there will be interest. It is also competing with gold as an alternative store of value.”

The 12-month non-deliverable yuan forward traded at 6.6255, implying an appreciation of 3 percent in the coming year. Forwards are agreements to buy and sell assets at current prices for delivery at a specified time and date. Non-deliverable contracts are settled in dollars.

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