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Should investors worry about the tumbling yuan?

The yuan’s sharp slide against the US dollar this year has prompted comparisons with 2015, when an August devaluation sparked turmoil in global equity markets. But this time, tighter capital control and more consistent policy have helped limit fund outflows, while China’s shift from current account surplus to deficit and its shrinking interest rate advantage with the US mean the yuan’s slide is not a surprise. A weaker yuan can also help offset US tariffs. We see the CNY weakening further, but don’t expect this to destabilize global markets.

Tariff traffic

During the recent US Presidential visit to London, I was stuck in traffic that seemed to be the “highest level of special.” I asked my taxi driver if this was caused by construction, tourism, or the city taking to the streets for an event. The sardonic reply came: “Construction, tourism, Brexit, Trump — take your pick today, sir.” For me, that traffic jam encapsulated a lot of the good and the bad impacting global markets. Yes, earnings and economic growth on the whole are strong,* but political issues are so often in view.


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