China: How long will calm last? - RBS

Research Team at RBS, suggests that China’s blowup requires a strong feedback loop between stumbling growth, domestic financial tumult, and external stress.

Key Quotes 

“Although another ‘perfect storm’ is not in sight, more vigilance is warranted, as vulnerabilities may increase in the coming quarters. A cyclical downturn is expected to unfold in the coming quarters, as 'mini supports' deliver weaker boosts than last year’s stimulus. The government also faces a challenge to orderly mitigate financial risks, including to rein in a growing property price bubble.

The yuan is a function of (1) China’s underlying pressures and (2) stability-oriented policy controls, requiring a calibrated trading strategy. Short CNY index is seen as a better play than outright long USD/CNY or USD/CNH in our baseline ‘grey sky’ scenario.”