Goldman Sachs analysts have concluded that the Chinese yuan is 25% undervalued, Bloomberg reports. The bank predicts that the Chinese currency will appreciate significantly more strongly than is currently priced into 2026 forward contracts.
The bank called the yuan’s appreciation one of the “most compelling” investment ideas. This conclusion is based on models that calculate the optimal exchange rate needed to support the country’s economic fundamentals.
Goldman strategist Teresa Alves, in a note, disputed the notion that currency appreciation will undermine China’s export boom.
“Some argue that the yuan’s undervaluation is a key driver of Chinese export competitiveness. We disagree: the yuan is so deeply undervalued that even our projected appreciation would keep the currency comfortably cheap,” Alves noted.
The bank’s analysis comes amid heightened debate about Beijing’s currency policy. China’s trade surplus exceeded a record $1 trillion in the first 11 months of the year, sparking discontent among trading partners. The IMF previously linked China’s export success to a real currency depreciation.
Goldman Sachs believes that the struggle for competitiveness could lead to currency devaluations in countries affected by China’s expansion, restoring the yuan’s relative strength. The bank expects the yuan’s appreciation to be “gradual and manageable,” but to exceed current market expectations.