Goldman Sachs strategists believe continued appreciation of the Chinese yuan could provide a significant boost to Chinese equities, as the currency shows resilience amid ongoing trade tensions with the United States, Bloomberg reports.
In a research note published Monday, analysts including Kinger Lau noted that for every 1% gain in the yuan against the US dollar, Chinese stocks could see a corresponding 3% increase. This correlation is attributed to factors such as a more optimistic outlook for corporate earnings and a likely rise in foreign investment inflows.
The investment bank recently upgraded its 12-month forecast for the yuan, expecting it to reach 7 per US dollar—up from a previous projection of 7.35. The currency’s relative strength supports Goldman Sachs’ “overweight” rating on Chinese stocks, particularly within the consumer discretionary, real estate, and brokerage sectors, which historically perform well during periods of yuan appreciation.
“Chinese stocks tend to perform well when the currency rises,” Lau and his team wrote, underscoring their positive outlook on the Chinese equity market.
The MSCI China Index has regained ground lost following former President Donald Trump’s announcement of new tariffs on April 2. A three-month trade truce between China and the US has contributed to the market’s recovery. In the broader context, global investors are showing increasing interest in Chinese assets, in part due to concerns over US tariffs and fiscal policies, which have led some to adopt a “sell America” approach to investment.
While skepticism remains around the US dollar and American equity markets, China has taken steps to maintain economic stability. The People’s Bank of China (PBOC) has implemented interest rate cuts and worked to keep the yuan stable, helping to reinforce investor confidence.
The yuan has risen approximately 1.4% against the dollar in May, hitting 7.1674 on Monday—its strongest level since November. That same day, the PBOC set the yuan’s daily reference rate at 7.1833 per dollar, marking the most significant upward adjustment since January. However, the rate remained weaker than the market’s spot price, indicating that Chinese officials are trying to manage currency volatility and avoid the sharp appreciation observed in other regional currencies, such as Taiwan’s dollar.
