China will not have a one-off yuan devaluation and the USDCNY is expected to be 7.00 sometime by the end of next year.
That’s the view of Sean Taylor, chief investment officer, Asia Pacific, head of emerging markets at Deutsche Asset Management.
Speaking at a recent press briefing held in Singapore, Taylor said that he expects the Chinese yuan to appreciate slightly by the end of 2017.
‘A one-off devaluation is not part of what they are talking about in terms of the reform process. It could lead to a lack of credibility for Xi’s presidency,’ he said.
‘I do believe that China still stays planned, and if the devaluation happens, the country will be going against the reform process, which will be a sign that the Chinese government is losing control of the overall economy.’
Taylor also said that if the worst case scenario of a one-off devaluation happens, the authorities need to be very communicative. ‘In this case, the Chinese government needs to be very communicative about its policy and tell investors it is only a one-off devaluation -- just to release the foreign exchange pressure.’
Despite Taylor’s prediction that the Chinese GDP figure will grow at 6% this year, which is lower than official forecast and peer predictions, there are positive signs for the Chinese growth story.
‘In the last six weeks, we are seeing a stabilising renminbi; the manufacturing economy has not deteriorated as people expected; the property market continues to improve and; the service sector is growing in real terms. These factors are injecting positive sentiment into the market,’ he said.
Constructive on EMs
Taylor has upgraded emerging markets equities for the first time over the last three years despite remaining neutral on global equities.
‘This is because we are positive about the yuan’s stabilisation. We are also seeing stabilisation among other emerging economies and the earnings situation is improving in the emerging markets.’
At the beginning of the year, Taylor was more positive towards Japanese and European equities.
In terms of Asia, Taylor said that he still remains overweight on the ASEAN region, which includes the Philippines as well as the Taiwan technology sector.
He downgraded India to neutral recently despite holding a long-term positive view on India.