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.