Question: What's your target? also won't depreciation ultimately be good for other rmb denominated assets like A shares and China RE?
It'll be good for nominal asset prices, but historically these depreciations have been negative for asset prices in the short-term. Marc Faber's Tomorrow's Gold: Asia's age of discovery lays out some examples.
As for a target, there's no market history below the 6.80s. The government managed appreciation from 8.28 to 6.8 by 2008, and then re-pegged amid the financial crisis. A 20 percent devaluation from current levels would take USDCNY to around 8.3, right around the old peg. I expect the market will anchor around that Schelling point once depreciation expectations take off. From the peak in early 2014, that works out to a depreciation of about 35 percent, hardly an extreme bearish scenario, in fact well within the normal range of a major currency's cycle from bull to bear.
The mitigating factor is USD. This all assumes a U.S. dollar bull market. If instead the U.S. dollar enters a bear market, CNY will follow USD lower, alleviating the need for depreciation versus the dollar.
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