Yuan’s Weakness A Negative Signal For Global Equity Prices by Eric Bush, CFA – Gavekal Capital

Over night, the yuan briefly hit a 5-year low against the dollar at 6.6050 CNY per dollar. It has rallied a marginal amount but remains basically at 5-year lows at 6.5818 CNY per dollar. Over the past four years, a weakening yuan has been associated with lower global stock prices. In the chart below, we show the CNY per dollar exchange rate with a one month forward lag compared to the year-over-year change in the MSCI World Index. This relationship has had a very negative correlation over the past several years and further weakness in the CNY probably will be associated with lower global equity prices.

Yuan Weakness Global Equity Prices

Yuan Weakness Global Equity Prices