Contrary to “conventional wisdom”, William Blair is long the Chinese yuan and does not expect to see any further devaluation or manipulation of the currency.
Speaking to InvestorDaily, William Blair partner and portfolio manager of the dynamic allocation strategies team, Thomas Clarke, said the Chinese yuan “isn't horrendously overvalued or unattractive”.
“The [Chinese] currency is actually the other way around. Actually kind of attractive. One of the reasons is that Chinese inflation has been very, very low for many years so it hasn’t lost competitiveness,” Mr Clarke said.
William Blair has two main reasons for its admittedly “anti-consensus” view on the Chinese yuan, he said.
First, the latest round of devaluation in August, when Chinese authorities devalued the currency by 3.5 per cent, had little practical effect.
“It spooked everybody and it led to expectations that there was more to come [and there would be a] currency war in Asia,” Mr Clarke said.
“All of China’s trading partners, excluding the US, saw their currencies fall by more than that.
“That means it’s kind of counter-productive from a domestic point of view – that is, when it comes to boosting net export prospects. When you devalue and everyone else devalues by more, it's [pointless],” Mr Clarke said.
Second, China is unlikely to devalue again since doing so would detract from the leadership's aim of making the country an economic superpower, he said.
Mr Clarke pointed to the recent successful effort to have the yuan included in the special drawing rights basket.
“Also, the increasing internationalisation of the currency is inconsistent with excessive manipulation and exchange rate devaluation,” he said.
“There have been lots of public statements from the presidency and prime minister and central bank that there’s not going to be any more currency devaluation.”