The divergence between the easing of monetary policy in China and the tightening from the Federal Reserve should underpin a gradual turn of USD/CNY, explained analysts at Danske Bank.
“If indeed China manages to drive a moderate recovery in 2022, it should provide upside for Chinese offshore equities, which tend to be quite cyclical in nature. We also see quite attractive valuation in the offshore market after the sharp declines this year, which happened on the back of the double whammy from a sharp cyclical slowdown (...). Large tech companies listed on the Hong Kong stock exchange have also been directly hit by the regulation.”
“Developers have also been hit hard but should in our view stabilize and recover during 2022 as home sales climb slowly higher. We do expect equity volatility to stay quite high, not least in the short term, as the economy is yet to bottom. But as we see more clear signs of a recovery during 2022, we expect it to lift Chinese stocks. China is still a high-risk market, though, as 2021 has also proven.”
“For USD/CNY, we expect the easing of monetary policy alongside rate hikes by the Fed to finally lead to a turning point for the cross. CNY has been trading very strongly in 2021 on the back of a high trade surplus, but we also expect this to come down during 2022 as the US demand for goods is expected to moderate. We expect USD/CNY to move towards 6.80 in 12M from the current level of 6.37.”
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