The Worst for the Yuan is Probably Over

The most reliable emerging-market currency bet of the past nine years is making a comeback on signs China is finished engineering the sharpest-ever decline in the yuan.

The People’s Bank of China strengthened the reference rate for the yuan by 0.2 percent last week in its biggest increase this year, after a record five straight months where it weakened the rate. JPMorgan Chase & Co. said that marked a “significant change in behavior” on the part of the central bank and investors should maintain bets on the currency using three-month non-deliverable forwards. Credit Suisse Group AG and Credit Agricole SA also recommended buying the yuan offshore.

“The worst for the yuan is probably over,” Ken Hu, the chief investment officer for Asia-Pacific fixed income at Invesco Asset Management, said in a June 13 interview. “The PBOC was weakening the yuan to shake out those one-way appreciation bets. Now we see an early sign that the renminbi is back to its structural appreciation trend.”


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