Baku. 29 August. REPORT.AZ/ Steady depreciation of Chinese national currency - yuan against the dollar and other major currencies is a greater threat to the global economy than Brexit. Report informs, chief investment strategist for State Street Global Advisors Michael Arone said.
He noted that investors are ignoring a steadily weakening Chinese yuan.
It’s clear that Chinese officials have taken advantage of the market’s preoccupation with Brexit
Strangely, the steady depreciation of the yuan over the past year has had little, if any, lasting impact on global financial markets. But that’s probably because distracted investors haven’t been paying enough attention, Arone said.
“First and foremost, the devaluation may signal further deterioration in the world’s second largest economy. It may be an attempt to uphold already slowing GDP growth by exporting deflation to protect its exports,” Arone said.
At 160% of GDP, China has the highest corporate debt ratio in the world. Last year, 44% of new issuance went to pay back existing debt. The International Monetary Fund has forecast that China’s potential losses from corporate loan defaults could exceed 7% of its GDP. McKinsey & Company claims this ratio could reach an astonishing 15% in 2019 if China continues on its current extraordinary lending course.
According to Goldman Sachs, an estimated $170 billion in yuan, 50% more than indicated by the central bank’s data, has found its way to the offshore Hong Kong market since last October, Arone said.
Another report, from Nomura Holdings, suggests China is masking some of its outflows by over-invoicing imports from tax haven islands like American Samoa. Its findings are illustrated in the chart below:
“How else do we account for the astronomical import growth from Samoa? Do we really think that China’s appetite for coconut oil has increased more than 700%?,” Arone said.
In the past 12 months, the dollar USDCNY,+0.1859% has risen about 4% against yuan traded in China’s onshore market. The Chinese currency has performed even more poorly against a basket of rivals, shedding about 7% of its value on a trade-weighted basis over the past year.
Analytical Group of Report News Agency said devaluation of Chinese yuan will give very serious damage to the world economy and financial system. As a result most countries will devalue their currencies."Because in order to prevent the import of cheaper goods and services from China there will not be another way. Most likely, this will happen.In the long run CNY / USD exchange rate will increase up to 8.3 in short term will exceed 6.70 level and rise to 6.80. After the devaluation of the yuan in China which is the main trade partner of Azerbaijan, devaluation of AZN will be inevitable.The reason for this will be the strategy of reduction of deficit in balance of payments."