Q What’s your take on China’s revaluation of its currency? Are there any opportunities for individual investors?—R.Mitchell

A After years of an artificially low peg, the Chinese have pledged to allow the yuan to appreciate gradually and to reform its exchange-rate policies to make the currency more flexible. This news triggered a positive reaction in US markets, as investors contemplated the benefits that would accrue to Western companies doing business in the country.

A stronger renminbi would enable Chinese consumers to purchase more foreign goods, potentially boosting the bottom line particularly of Western exporters.

And a flexible foreign-exchange policy would help China control inflation and the formation of asset bubbles. It would also facilitate the economy’s transition to one driven by domestic consumption rather than exports.

This news has sparked interest in WisdomTree Dreyfus Chinese Yuan (NYSE: CYB), which has enjoyed a huge uptick in volume and attracted millions of dollars of assets.

A trade on an appreciating yuan appears to be a no lose bet after China’s recent policy announcement.

With assets of just under $725 million and an expense ratio of 0.45 percent, WisdomTree Dreyfus Chinese Yuan is the cheapest yuan play on the market. Market Vectors Chinese Renminbi/ USD (NYSE: CNY) carries an expense ratio of 0.55 percent—an odd situation in a market where exchange-traded notes are usually the cheapest option available.

Prospective investors should be aware that the fund primarily uses futures to gain currency exposure, as well as treasury bills, swaps and repurchase agreements. Accordingly, the fund’s performance is largely predicated on future expectations for the currency’s performance rather than short-term moves. And the transition to a floating-rate currency will be months, if not years, in the making.

The bottom line: Avoid the temptation to try to bet on the renminbi through ETFs—it’s likely a losing proposition.

We recommend that investors focus on Chinese companies that benefit directly from an increase in domestic demand. Ctrip.com International (NSDQ: CTRP), profiled by Hannah Hsu in the April issue would be one such option.

Q A friend of mine raked in huge profits from an investment in a Brazilian sugarethanol firm. Is there further upside to this story?— Anthony Barry

A Going forward, fragmentation in the industry offers plenty of opportunities for the biggest operators to grow market share by acquiring smaller players.

And adoption of sugar ethanol has occurred at a rapid pace since flex-fuel cars entered the Brazilian market in 2003; last year roughly 90 percent of new cars sold in Brazil could run on either ethanol or a blend of gasoline and ethanol. At present, it’s estimated that flex-fuel cars account for 37 percent of passenger vehicles in Brazil. Ethanol is readily available at gas stations throughout the country, though price still appears to be the biggest driver of consumption.

As ethanol consumption picks up both domestically and in the EU, that puts pressure on the amount of sugar available for food applications. Meanwhile, improved standards of living and higher household incomes in emerging markets will continue to increase global demand.

Last year demonstrated just how easily conditions can tighten in the global sugar market. After inclement weather in both Brazil and India—the world’s top two sugar producers—constrained supplies, sugar prices shot through the roof.

In January the price of raw sugar touched USD0.29 per pound, the highest level in 29 years. In recent months prices have retreated substantially in anticipation of a strong growing season for Brazil, India and other key producers.

But international sugar stocks remain at historically low levels; for example, analysts expect China to import more than 1 million tons of sugar in 2010 after the government auctioned off 800,000 tons of strategic inventories in an effort to combat inflation.

Still, the sugar story can be a bitter pill to swallow, especially for “green” investors that buy into the environmental advantages of sugar ethanol and overlook the inherent volatility of international sugar markets. Remember, the sugar industry’s fortunes are subject to Mother Nature’s whims; investors should be prepared to stomach price volatility.

Allocating money to the sector when the supply situation tightens makes sense. We prefer broader plays on Brazil’s agricultural strength.

Agricultural outputs account for a quarter of Brazil’s gross domestic product and roughly 40 percent of its exports. China became a net importer of corn for the first time last year, and a shortage of land, water and agricultural labor in the country’s rural areas suggest that it will increasingly rely on imports to feed its population. This trend, coupled with robust domestic demand and an extended growing season, bodes well for Brazil’s agriculture industry as a wole.

To profit from this story, as well as emerging opportunities in Russia, investors might consider suppliers of agricultural machinery such as AGCO Corp (NYSE: AGCO) or CNH Global (NYSE: CNH). Both companies stand to benefit from increased sales to Brazil and in Russia, and the stocks are easy for US investors to buy.

Those looking for local exposure should take a look at All America Latina Logistica (Brazil: ALL11); its rail network serves an area that accounts for 68 percent of the Mercosur (a trading bloc whose full members include Argentina, Brazil, Paraguay and Uruguay) and includes seven of the eight most active ports in Brazil and Argentina. All America Latina Logistica transports a great deal of the region’s agricultural exports on its rails.

We’re always happy to receive subscriber comments and questions by e-mail at service@rukeyser.com or by telephone at 800-832- 2330. Maybe your question will appear in our next issue!