Falling yuan to trigger turmoil in global markets - AFR

In an exclusive interview with the Australian Financial Review (AFR), a leading Beijing-based research analyst, Anne Stevenson-Yang, noted that a global equity market meltdown could be on cards as the Chinese currency is expected to fall sharply in 2017, which will heavy cause huge pain for commodity-dependent countries such as Australia.

Key Quotes:

"The drama for the Chinese monetary managers is the situation with the currency." 

"They tried hard in 2016 - and were successful for a time - in fostering the expectation that the exchange rate might bounce up and down and that the economy had bottomed.

"But now there's nobody who doesn't think the yuan is going to depreciate. And if there's an expectation that the currency is going to continue to fall, everyone is going to continue to try to take their money out."

"But that's clearly not what China wants to do, so letting the currency float is inevitable."

"It would destroy the Chinese economy's chances of growth, and growth is very important politically. It would crash stock markets internationally, and it would destroy the commodity economies - it would have a lot of ugly effects.”

"But I do think that it is inevitable. And the currency will float down to 10 or so to the US dollar when the time comes [the yuan is trading at just under seven to the US dollar]. And this will cause a nasty reaction in markets."

"The yuan will go way down before it corrects. How much iron ore will Chinese steel producers buy if it becomes 20 to 25 per cent more expensive to buy, especially since the steel industry is already losing a ton of money?"

"And that will be a big shock to Australia. Nobody wants that to happen, particularly not China. But, ultimately, it has to happen."

"But if they see the exchange rate falling sharply, they'll panic and try and get their money out. And that's why the yuan will overshoot on the downside."