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How To Trade China's Surprise RMB Depreciation

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How To Trade China's Surprise RMB Depreciation
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China’s surprise decision to devalue the Renminbi caught global markets off guard this week. However, now that Wall Street has had time to digest the move, several analysts have weighed in on ways to trade China’s decision.

Here’s what Deutsche Bank has to say.

Airlines

Analyst Vincent Ha believes that the 13-17 percent drop in Chinese airline stocks following the move is overdone and that the core of their businesses remains strong. “We think that any excessive weakness in share price could be a good opportunity to buy,” he writes.

Deutsche Bank recommends Chinese-traded Air China, China Eastern Airlines, and China Southern Airlines.

Commodities

Analyst Grant Sporre discusses why the devaluation will make metals more expensive to import to China. “The immediate impact will be that the arbitrage between domestic and imported supply closes up, discouraging imports in favor of domestic supply in commodities such as coking coal and zinc,” Sporre explains.

Deutsche Bank maintains Buy ratings on Rio Tinto Plc (NYSE: RIO), BHP Billiton Plc (NYSE: BBL) and Vale SA (NYSE: VALE).

Utility/Alternative Energy

Analyst Michael Tong sees limited impact on the majority of Chinese domestic energy and utility names. “The HK/China utility/renewable/environmental space has relatively limited overseas operations and their revenues and costs are largely RMB-based, thus the currency risks from RMB depreciation are mainly for companies with high USD&HKD debt exposure,” Tong explains.

Tong mentions equipment makers CIMC Enric and gas company Towngas China as the companies with the largest export mix in their respective sectors.

Deutsche Bank has Buy ratings on Chinese-listed Beijing Enterprises and China High Speed Trans.

Latest Ratings for RIO

DateFirmActionFromTo
Nov 2017JP MorganDowngradesOverweightNeutral
Aug 2017RBC CapitalDowngradesTop PickOutperform
Dec 2016Credit SuisseUpgradesNeutralOutperform

View More Analyst Ratings for RIO
View the Latest Analyst Ratings

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