Across The Border | Current yuan depreciation is still liveable but could become insidious, warn analysts
As renminbi continues dropping, investment portfolios will need to be adjusted, most vulnerable would be the currencies of major exporters to China
Global investors have remained surprisingly calm so far about the recent devaluation of the yuan, easing earlier fears of a so-called “hard landing” for the Chinese economy.
But some analysts are now warning of a potential spillover effect, if the currency is allowed to keep falling at its current pace.
The yuan fell to a six-year low of 6.78 to the greenback last Tuesday, marking a total 1.6 per cent depreciation during October, its biggest monthly fall since May, and 3 per cent lower than June.
However, unlike the 2 per cent one-off weakening of the yuan’s mid-price fixing conducted by the People’s Bank of China (PBOC) on August 11 last year, which shocked investors and caused widespread investment market panic, many have felt the market can still live comfortably with a steadily downward movement in the currency.
Chen Long, an analyst with Gavekal Research, says investors now widely believe the yuan’s recent weakness stems almost entirely from the strength of the US dollar, rather than any clever ploy by Beijing.
While the renminbi has been steadily falling against the dollar, the CFETS index, which measures the yuan against 13 major trade currencies, has remained steady in the last four months at between 94 and 95.