7 Ways to Cash In on the Soon-to-Soar Yuan

The market's had it with the dollar's dragging the value of China's yuan. Since the Chinese currency is pegged to the value of the dollar -- despite the more robust economy half a world away -- many argue that the yuan should be allowed to float higher against our greenback.

This isn't a universally welcome notion. China is resisting the move for many legitimate reasons:

  • It owns a ton of U.S. debt, and a higher yuan would devalue the dollar-denominated paper.
  • A higher yuan would make its exports more expensive overseas.
  • The flip side of that equation is that it would also make imports cheaper in the world's most populous nation. It's a mixed blessing that would stretch China's spending power while sacrificing local industries.

However, it's inevitable that the yuan will gain ground against the dollar eventually, and stateside investors can cash in on the move.

The key to profiting from the move is buying into Chinese companies that won't feel the sting of a slowdown in exports. In other words, stick to companies that market their wares and services within China -- especially those in the leisure and entertainment industries. These are the companies that will benefit from broader discretionary income. Stateside investors also benefit from the appreciation of the revenue and share prices relative to their dollar-denominated investments along the way.

Here are seven stocks that I think fit the bill.

Company

Industry

Baidu (Nasdaq: BIDU  )

China's leading search engine. It generated $651 million in revenue last year and continues to grow briskly.

Ctrip.com (Nasdaq: CTRP  )

As a leading travel portal, Ctrip will benefit greatly as corporate and consumer travel picks up.

Changyou.com (Nasdaq: CYOU  )

Online gaming is a booming sector in China, and Changyou was one of last year's hotter IPOs.

China Mobile (NYSE: CHL  )

Wireless carriers will feast on chunkier discretionary income, and China Mobile is already a juggernaut.

Focus Media (Nasdaq: FMCN  )

Advertising giant posted better-than-expected quarterly results this week. Focus runs ad networks on digital poster frames, television monitors in high-traffic areas, and even movie theaters.

NetEase.com (Nasdaq: NTES  )

A pioneer in online gaming, NetEase also runs a popular Internet portal.

China Real Estate (Nasdaq: CRIC  )

Providing real estate research has been a fast-growing niche in a hot realty market.

There will naturally be many more winners when the yuan begins to tick higher. If you have a favorite play, share it with your fellow Fools in the comment box below.

Baidu and NetEase.com are Motley Fool Rule Breakers choices. Ctrip.com International is a Motley Fool Hidden Gems recommendation. The Fool owns shares of China Mobile. Try any of our Foolish newsletters today, free for 30 days.

Longtime Fool contributor Rick Munarriz speaks two languages fluently, neither of them Mandarin. He does not own shares in any company mentioned in this story, though he maintains a healthy overseas exposure through international stock funds. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.


Read/Post Comments (4) | Recommend This Article (13)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 18, 2010, at 5:14 PM, jmt587 wrote:

    I like (and own) CSKI. OTC herbal remedies aren't exactly discretionary products in the minds of US consumers, but in China, a wight loss medicine, or a skin cream, might be more of a luxury purchase than we would consider it here. Do your own due diligence, Asensio, a shorter with a good record, is very down on CSKI, and has some legitimate complaints / questions. I've looked at all of them to date, and I'm comfortable with the companies responses, given my own knowledge of how businesses actually run. My big question is how they keep inventory as low as they do, something seems off there, but the question has been raised, and I think the answer will come out in the next year or two.

  • Report this Comment On March 19, 2010, at 9:51 AM, pedorrero wrote:

    Just how much might the yuan appreciate, or the dolllar depreciate? I get the feeling of deja vu by thinking of what happened in the early 1970s when the Dollar floated for the first time. Back then "Red" China was best known for making fireworks, perhaps. Some European goods rose in value 2x, 3x, or more in a short period. I recall a friend's dad had a Hasselblad (very expensive camera gear) that had gone from like $2K to $10K (that was a lot of money in 1975). If you need anything expensive from (or in) China, this is probably the time to buy it.

  • Report this Comment On March 19, 2010, at 9:52 AM, pedorrero wrote:

    Just how much might the yuan appreciate, or the dolllar depreciate? I get the feeling of deja vu by thinking of what happened in the early 1970s when the Dollar floated for the first time. Back then "Red" China was best known for making fireworks, perhaps. Some European goods rose in value 2x, 3x, or more in a short period. I recall a friend's dad had a Hasselblad (very expensive camera gear) that had gone from like $2K to $10K (that was a lot of money in 1975). If you need anything expensive from (or in) China, this is probably the time to buy it.

  • Report this Comment On March 19, 2010, at 11:13 AM, yettry wrote:

    Bad comment system.

    Baidu (Nasdaq: BIDU) will rise for a long time, I bought it just before.

    http://hot-penny-stocks.blogspot.com/2010/03/investing-top-s...

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