CLSA Sees 2017 Yuan Deval

SCMP: Back to 1997? Why Chinese yuan and Hong Kong property prices may go down by a fifth next year

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.

...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.

That would be very close to the minimum forex reserves level recommended by the International Monetary Fund of US$2.5 trillion, Gill said. He added that China by then would have to abandon its defence of the exchange rate and allow a free float to introduce market-based pricing.

This is a decent baseline forecast, I don't view it as pessimistic, it's a straight line continuation of present trends. Reality will be better or worse.

Not everyone is bearish: Analysts divided in their bearishness on yuan

Aidan Yao, senior emerging Asia economist at AXA Investment Managers, said he remained comfortable with the call of a mild and gradual medium-term depreciation of the yuan on a trade-weighted basis, although the economy would accelerate in the coming quarters based on policy support.

...However, the Macquarie analysts do not expect drastic capital flight and a sharp yuan depreciation this year.

“The overarching theme this year is power transition in 2017,” they said. “Therefore, policymakers both at the central and local levels will do whatever it takes to deliver a stable economic and social backdrop. That’s why we stick to our positive views during the market downturn and refute gloomy views such as a hard landing, capital flight and sharp RMB depreciation.

Also: Rich Asians urged to buy US dollars as surge in region’s currencies start to fizzle

Credit Suisse Group AG is advising its private-banking clients to bet the greenback will gain versus a basket of peers that includes the South Korean won, Taiwan dollar, Thai baht and Philippine peso. UBS Group AG said investors should buy the currency against the Singapore dollar and yen. Stamford Management Pte, which oversees about US$250 million for Asia’s rich, urged clients to buy the US dollar each time it falls below S$1.35.