Fundamental Forecast for CNH: Bearish
- US-China trade war could continue to drag down the Yuan and Chinese equities.
- A reserve requirement ratio cut could weaken the Yuan but benefit Chinese equities.
- Chinese regulators may leave the Yuan falling when it continues, while support equites.
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Both the Chinese Yuan and Chinese equties tumbled this week: the offshore Yuan (CNH) lost -1.13% against the U.S. Dollar[2], the largest loss on a weekly basis since November 2016; the Shanghai Composite Index plunged -4.37% and dipped 2837.14, the lowest level since June 2016.
Looking forward, the Yuan rate and Chinese stocks may continue to suffer from the intensified US-China trade war, with tit-for-tat attacks. US President Trump has threated to impose tariffs on additional $200 billion Chinese goods. This was after China announced reciprocal tariffs on $50 billion US products in response to United States’ first tariffs action. The U.S. also warned additional tariffs on anonther $200 billion Chinese goods ($50 + $200 + $200 bln in total), if China increases tariffs again.
A core interest that the largest two econmies are fighting for is the development intechnologies, in specific high-tech[3]. For China, this is the sector that will likely get hurt the most in the trade war. Among all Chinese A-shares, computer and telecommunication stocks lost the most during the Wednesday plunge; indices for both sectors fell more than -7%.
In addition, Chinese technology giants have been facing increasing troubles in the U.S. market. The
