Opportunity in volatility despite China concerns

CHINA'S recent devaluation of its currency has raised a lot of questions and, as a result, we have seen a near-panic response across financial markets. However, we do not believe that the renminbi's depreciation is something that should come as an enormous shock to global markets.

While the renminbi has depreciated about 5 per cent over a short time frame, we believe the pace is likely to remain relatively controlled as the government incrementally moves towards a more market-driven environment. Importantly, we do not think the move is a signal of a massive depreciation to come.

Additionally, although the decision to depreciate the renminbi resulted in a near-term increase in volatility, we don't believe it will fundamentally amplify currency depreciation across Asian or emerging-market currencies over the longer term. The neighbouring Asian countries (such as Japan, South Korea, Indonesia, Malaysia and Singapore) have already experienced large declines among their currencies, whereas the level of the renminbi has remained relatively strong even when accounting for its recent depreciation. Therefore, we do not expect that China's recent devaluation will likely erode the competitiveness of its neighbouring countries or their exports.