China's currency struggles spell trouble across EMs

Just months ago, the Chinese yuan was reigning supreme as emerging markets' own haven asset, shielding investors from the turbulence of war and runaway inflation. Today, it's turning into a threat.

As growth sputters in the world's second-biggest economy, its currency has tumbled to a two-year low and looks set for further losses. That's pushing Goldman Sachs Group Inc. to SEB AB to predict shock waves not just in China's neighborhood but as far away as Africa and Latin America - with a cheaper yuan hitting other nations' export appeal and sparking competitive devaluations.

"With the yuan set to weaken further, other emerging markets will face downward pressure on their currencies," said Per Hammarlund, the chief emerging markets strategist at Skandinaviska Enskilda Banken. "The impact will be felt the most by nations which compete directly with China on exports."


The yuan declined for a sixth consecutive month in August, capping the longest losing streak since the height of the US-led trade war in October 2018. It will fall even more and cross the psychological mark of 7 per dollar this year, money managers including Societe Generale SA, Nomura Holdings Inc. and Credit Agricole CIB say.

It's a stunning reversal for a currency that stood out for its resilience at the outbreak of Russia's war in Ukraine.