ING Financial Markets equities strategist Markus Rosgen takes the bold view that a significant revaluation, raising the value of the yuan to eight per dollar could occur in six to nine months because it has become apparent that it is in the interests of China and the US.

Other banks expect a gradual move towards a free floating currency will happen within the next year. JP Morgan regional currency strategist James Malcolm said the yuan would appreciate to 8.20 to the dollar by the end of next year, and to eight by the end of 2005.

As revaluation looks ever more likely, attention has turned to its effect on different sectors of the economy. Mr Rosgen said non-tradable stocks that had suffered since the 1997 Asian financial crisis - real estate, banks, conglomerates and consumer plays - would get a new lease of life from yuan appreciation. 'The Hong Kong economy will benefit hugely,' he said.

Morgan Stanley Asia-Pacific strategist Norman Villamin said the market had already begun anticipating revaluation and this had pushed heavy recent liquidity flows into H shares and red chips.

Export-led stocks stand to lose the most from revaluation. Mr Villamin said in the past few months Morgan Stanley had started trading out of exporters and into more domestic demand plays in the region. He said as the recent rally in Hong Kong property stocks came to an end, attention would turn to laggards such as media plays.

JP Morgan Asian strategist Adrian Mowat said that from the perspective of a Hong Kong dollar investor, telecommunications firms such as China Mobile and China Unicom stood to benefit because the value of their revenue stream would go up.

Mr Rosgen said the momentum pushing China onto the road to revaluation was too powerful to ignore. The issue was now at the top of US policy agenda in the run-up to next year's presidential election.

President George W. Bush must persuade voters that he is acting to stem a record trade deficit with China that lobbyists for major firms such as Nucor Corp and Boeing claim has contributed to the loss of 2.6 million jobs since he took office in January 2001.

Furthermore, Mr Rosgen said it had become increasingly apparent that China's economy was in need of slowing down. He said loan and money supply growth in China were both running at more than 20 per cent. 'This year, China has seen US$20 billion of hot money inflow, which is above both the trade and the capital account inflow,' he said. China's central bank recently raised reserve requirements to tackle the issue but Mr Rosgen said all this did was encourage more hot money. 'If you widen the band, the problem goes away and establishes China as a power to be dealt with,' he said.

However, HSBC regional Asian strategist Nilesh Jasani said there was little chance of revaluation soon, and even if there was, he said there would have to be a 15 to 25 per cent increase in yuan valuation before there was any material impact on regional equities.

Meanwhile, the yuan's 12-month forward rate backtracked a little, implying the yuan would rise to 8.1025 to the dollar.