Back to 1997? Why Chinese yuan and Hong Kong property prices may go down by a fifth next year
CLSA says China will end its currency’s unofficial peg to the US dollar, unleashing widespread market havoc
China is likely to “de-peg” the yuan from the US dollar in the second half of 2017, leading to a sharp depreciation of the currency and dealing a severe blow to Hong Kong’s property market, brokerage and investment group CLSA said in a report on Friday.
The de-pegging will cause the yuan to fall 19 per cent by the end of next year and knock off Hong Kong property prices by a fifth, in a throwback to the housing crisis and deflation in 1997, said Amar Gill, head of Asia Research at CLSA.
“The overall trend is declining for China’s foreign exchange reserves since the second half of 2014. And the drivers for capital outflow remain...It is too early to say that China has reached the peak for capital outflows. In fact, we are to see continued outflow of capital from the economy in the next six months” said Gill.
Chinese authorities tightly control the movement of the yuan against a basket of currencies, heavily weighted to the US dollar, in what some analysts call an unofficial peg. Defending this peg has taken a toll on China’s fabled foreign exchange reserves in recent months.
If China’s forex reserves decline by US$50 billion on average every month, which has been roughly the case for the past 18 months, it would shrink below US$2.75 trillion around the middle of 2017, CLSA estimates.
