Handicapping China Deval Risks
- We are skeptical of the political appetite or urgency for a big RMB devaluation, but it would be remiss of us to not point out many visible signs of stress in the data we track.
- We review China's key macro and structural indicators to provide the full context.
- The most likely path remains for Chinese authorities to slowly and quietly allow the RMB to depreciate over time, avoiding big moves that could exacerbate political tensions or capital flight.
- Strategically, on a 6-12m forward basis, we would still retain a long USDCNH bias, but look to trade it tactically, buying USDCNH on corrections (e.g. back in February) and to trim once USDCNH devaluation risks hit the headlines.
ChinaPortfolio WatchUSDCNHRMB
