Goldman Sachs sees growing risk that capital outflows from China may accelerate as the renminbi weakens, causing another broad sell-off in global financial markets, Bloomberg News reported.
“We shift to an outright negative view” on the Chinese currency, the US investment bank was quoted as saying in a note Thursday.
As China’s central bank guides the renminbi lower against the dollar, “the risk is that this re-ignites capital flight in the same manner it did in August (2015) and around the turn of the year,” Goldman strategists said.
The renminbi is currently trading near a five-year low as the dollar has strengthened amid expectations of an interest rate hike by the US Federal Reserve.
In January, the renminbi’s weakness triggered a global equity sell-off amid concern that China may engineer the second devaluation since August to bolster growth, Bloomberg noted.
China has shifted its management of the yuan, keeping it steady against a basket of currencies while downplaying the significance of the exchange rate versus the dollar.
Such a strategy may not succeed in stemming capital outflows because it is the dollar-yuan exchange rate that Chinese households and companies are most sensitive to, according to Goldman.
“We see a good chance that markets will again speculate over the need for a one-off devaluation, even if the message from policy makers has been that this is not on the cards,” it said.
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