China’s Yuan Could Hit Low 6 Against Dollar, Says Eurizon’s Jen

Stephen Jen, CEO of Eurizon SLJ Capital, forecasts a significant rally for China's yuan against the dollar, potentially reaching 6 per dollar, citing anticipated pressure from trading partners. Despite a 2.4% appreciation against the dollar year-to-date, the yuan's weakening against other currencies amidst a broader dollar decline has created a perceived "opportunistic devaluation," which Jen expects will prompt international pushback. The yuan was trading at approximately 7.13 per dollar on Monday.

Analysis

Eurizon SLJ Capital CEO Stephen Jen projects a significant appreciation for the Chinese yuan against the U.S. dollar, forecasting a potential move to the low 6s from its current level of approximately 7.13. This bullish thesis is predicated on the view that Beijing will face increasing international pressure to allow its currency to strengthen. Despite the yuan gaining 2.4% against the dollar year-to-date, its simultaneous decline against other major currencies—a consequence of the greenback's even steeper fall—has created what Jen terms an "opportunistic devaluation." This relative weakness enhances Chinese export competitiveness and is expected to provoke pushback from major trading partners, which would serve as the primary catalyst for the anticipated rally.

Key Decisions for Investors

• Investors who find this thesis compelling may consider establishing long positions in the Chinese yuan (CNH) against the U.S. dollar to capitalize on the potential 15%+ appreciation.
• Monitor official communications and trade rhetoric from China's key trading partners for evidence of the 'pushback' that is the central catalyst for this forecast.
• A significant yuan appreciation would negatively impact Chinese exporters' profitability while benefiting companies with large RMB-denominated costs or those importing goods from China; portfolio exposure should be reviewed accordingly.