Yuan devaluation: Bearish on Asian markets, says CLSA's Christopher Wood

Christopher Wood, managing director and chief strategist CLSA said US-dollar denominated investor in Asia are clearly bearish. In absolute-return terms downside risks are clearly growing, most particularly if the US Fed starts raising rates. There is also the increased risk for those Chinese corporates who have borrowed dollars.

Wood said the potential for a reflexivity-driven downside overshoot in Asian stock markets has grown with the PBOC’s decision to refix the value of the renminbi by 1.8% and 1.6%, respectively, making for a total of devaluation of 3.4%.

CLSA chief said the downside risk is that investors will now assume the worst until proven otherwise; namely that China has abandoned its goal of building a consumption-driven economy and has joined the competitive devaluation race. They will also recall the 33% renminbi devaluation of 1994 which history will remember as the lead indicator of the 1997 Asian Crisis. The move has also come as the backdrop of a rising US dollar, plunging commodity prices and declining world trade growth is driving bearish sentiment on global growth in general and on emerging markets in particular.

Wood said from a relative country asset allocation standpoint CLSA is not making any major changes today, save to add to Hong Kong by one percentage point by reducing China by one percentage point.