As we have said before, until there is 2-way risk in RMB, there is 1-way risk in oil, commodities and EM. BofAML remains long 6-month forward USD/CNH, and long 3-month USD versus a basket of KRW, TWD, MYR. Once Chinese exports react positively to the cheaper currency, a bid is likely to return to Chinese assets. Until then the greatest China threat could be via the Chinese corporate bond market, currently at multi-year highs versus Chinese stocks (Chart 5) despite a credit crunch.
3. The End of the Oil Age. The new oil price regime is likely to continue to create financial stresses in the Middle East (see stock prices in Iran & Saudi Arabia – Chart 6) and fears of regional currency pegs coming under pressure or speculative attack.