Sean Taylor, Deutsche Asset Management’s chief investment officer, APAC, expects the Chinese yuan to depreciate by 5%-7% in the next couple of years against the dollar.
Speaking at a press briefing held in Singapore on Monday, he said he is still worrying about emerging market currencies and expects a 7% renminbi depreciation.
‘We don’t think renminbi slippage over the year is unexpected,’ said Taylor. ‘When the People's Bank of China moved to liberalise the yuan last August, and then the renminbi acquired Special Drawing Rights status in November, you have to look at the renminbi against the basket of the currencies.
‘Therefore, if we are more negative on the euro and yen versus the US dollar, then chances are that the renminbi will also fall.
However, Taylor said the renminbi will outperform emerging markets currencies.
Lack of policy clarity
According to Taylor, China is very much driven by what happens next in the market. ‘We think one of the things has been worrying investors this year in China is the renminbi and the PBoC's lack of clarity.
‘Long-term structural reform in China requires the renminbi to be an important policy tool for domestic reform, which means it should be stable.
‘We think stable means adjusting in line with the SDR basket, and therefore, you will get depreciation, though it won't be very high.'
Taylor added that a very large percentage of depreciation is unlikely to happen as it will go against the country’s reform agenda to achieve a more prosperous China.
‘If you move away from the target of the renminbi’s depreciation figure and do a massive devaluation, that implies the economy is in a much worse state than expected. Even if your exports are better, you still need to have the demand for the exported goods,’ said Taylor, adding that global demand is low.