Exporters, utilities and miners to benefit with yuan likely to weaken beyond seven to US dollar for first time in decade

The yuan is widely expected to test the psychologically important rate of seven to a US dollar for the third time in three years, amid an escalating trade war between China and the United States, the world’s two biggest economies.

But unlike 2016 and 2018, when Beijing intervened to support the Chinese currency, its central bank governor, Yi Gang, has indicated there are no “redlines” for the exchange rate this time.

“Chinese growth is likely to be further derailed by the ongoing trade war … [it] … is expected to slow down. It would need to see a devaluation of the yuan to help boost the economy,” said Bruce Yam, forex strategist at Hong Kong broker Everbright Sun Hung Kai.

He said he expected the yuan to devalue beyond seven per US dollar in the coming months, hovering in the range of 6.68 yuan to 7.15 yuan in the medium term. State-owned Chinese lender Bank of Communications International and Swiss bank UBS too have forecast the Chinese currency to devalue beyond seven yuan per US dollar in the next three months.

“Generally speaking, the depreciation of the yuan will benefit sectors such as exporters and mining explorers, since the depreciation will help them reduce exporting costs or exploring costs,” said Kenny Ng, securities strategist at Everbright Sun Hung Kai.

Shares of exporters, utilities and mining companies will benefit from a weaker yuan, while airlines, papermakers and Chinese companies with high US dollar debt should be avoided, according to analysts.