Chinese Yuan: Recovery contrasts with domestic imbalances – Societe Generale

Societe Generale highlights that the Chinese Yuan (CNY) is trading at its strongest level since 2022, despite IMF estimates suggesting it remains significantly undervalued. The bank links this to domestic imbalances and a K-shaped recovery, noting mixed inflation dynamics and strong export performance. Their economists see China comfortably meeting its 2026 growth target with incremental easing, with key data and policy speeches due soon.

CNY strength versus undervaluation signals

"The CNY is now trading at the strongest level since 2022. According to IMF estimates, the undervaluation of the yuan is in the range of 17.3% to 25.3%, with a midpoint of 21.3%. This reflects underlying domestic imbalances."

"Headline inflation inched up to 0.9% in September, but core was unchanged at 1.0%. Factory gauge PPI inflation accelerated to 5.5% in September from 3.8% in August, indicating the struggle of producers to pass on higher costs. Exports jumped 29.6% yoy, boosting the trade surplus to $133.53bn in September."

"Our economists believe China can comfortably achieve its 2026 growth ambition of 4.5-5.0% with some incremental easing."

"3Q GDP and September activity data is due next week. PBoC governor Pan Gongsheng and NFRA head Ding Xiangqun will deliver keynote speeches at the Financial Street Forum starting 19 October."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)