A renminbi revaluation is bad news for many local equities, Citi analysts have said, but active managers may be able to find a few bright spots.
Retail and consumer equities are the short-term losers if the renminbi is revalued, with resource commodities and equities being the long-term losers.
Ironically, those resource commodities and equities could be short-term winners, along with gold, developers & contractors, and gaming & leisure stocks.
Similarly, Citi puts gaming & leisure equities in the long-term winners’ basket, along with transport equities.
City analysts Richard Schellbach (pictured) and Graham Harman “don’t see any sudden or sharp revaluation of the RMB happening” but they do “believe that a stronger RMB is required”.
“Equities in the retail and consumer space stand to lose the most … given they source the majority of their products from China,” Schellbach and Harman said.
The first few years after a strong RMB revaluation “are unambiguously positive for resource commodities”, the analysts said, but over a longer time “we see possible slower Chinese growth reversing some of the initial positives from a higher RMB … (and) resource demand and prices could be expected to fall lower”.
Other consequences flow from a stronger renminbi, Schellbach and Harman said. These include more M&A activity, less imported deflation, more demand for Australian residential property and service exports (such as education, construction, and engineering), and more demands for Australian residency.