Pacific Investment Management Co said the Chinese yuan is poised to weaken another 7 per cent, after the central bank devalued the currency in August in a move that sent emerging-market assets tumbling.
The People’s Bank of China will also cut deposit rates in the nation by 75 basis points and reduce the required reserve ratio for banks by 200 basis points, according to Pimco. Investors can expect declines in Asian emerging-market currencies including the South Korean won and Malaysian ringgit as a result, according to a report Thursday by portfolio managers Adam Bowe in Sydney, Isaac Meng in Hong Kong and Tadashi Kakuchi in Tokyo.
China’s decision to devalue its currency on Aug. 11 sparked concern the government is struggling to offset a slowdown in the economy, and the move is rattling markets almost two months later. The Shanghai Composite Index fell 29 per cent in the third quarter, the biggest decline since the first three months of 2008. Asian currencies also suffered their steepest losses in seven years.
Weaken further
“We expect private capital expenditures and property prices to weaken further, risking a negative spillover to employment and consumer spending,” according to the report. “We expect to see a significant monetary policy response from the PBOC.”
Pimco, which has $1.52 trillion (Dh5.6 trillion) in assets, didn’t say when the changes will happen.
China’s economy will grow at a pace between 5.5 per cent to 6.5 per cent in each of the next four quarters, according to Pimco, versus 7 per cent in the April-to-June period. The yuan is poised to weaken to 6.8 against the dollar, the report said, from 6.3571 as of the 4:30pm close on Wednesday in Shanghai. Chinese financial markets were closed for a holiday on Thursday.
China’s decision to weaken its currency on Aug. 11 brought the yuan down by 2.5 per cent against the dollar in the third quarter, making it more expensive for people in the nation to buy goods from their trading partners in Asia. The Bloomberg- JPMorgan Asia Dollar Index dropped 4 per cent in the period.
Pimco has positions that will benefit from declines in the South Korean, Malaysian, Thai, Singapore and Taiwan currencies, according to the report.
original source: http://gulfnews.com/business/sectors/markets/pimco-sees-7-devaluation-in-chinese-yuan-as-economy-slows-1.1593560