Goldman flags yuan 20% undervalued, lifts China bets

Goldman Sachs has shifted its stance on the Chinese yuan, arguing that the currency is more than 20% undervalued versus the US dollar and likely to appreciate significantly over the next 12 months. This upgrade comes at a pivotal moment: Trump is set to meet Xi Jinping in Beijing this week, and China has quietly been accumulating strategic gains from the Iran war by offering itself as a neutral trade partner and energy broker. The yuan strength thesis assumes that China's economic fundamentals improve relative to the US, or that capital flows shift toward Chinese assets as geopolitical risks favor China's neutrality.

China is positioning itself as a stabilizing force in global energy markets. Chinese refiners are seeing strong demand for platinum and other metals, suggesting that Beijing is quietly building stockpiles and hedging against currency volatility. The first-quarter factory inflationThe rate at which prices rise across an economy. data, while elevated, has been cushioned by China's strategic oil reserves and diversified renewable energy base, giving the country more pricing power than energy-dependent rivals like India or the Philippines. This resilience is underpinning the yuan strength narrative.

However, the yuan upgrade also carries tail risks. If the Iran war escalates further or if Trump's Beijing summit produces a trade or tariff escalation rather than cooperation, the yuan could weaken sharply. Additionally, China's marriage registrations hit record lows in Q1, signaling persistent domestic weakness in household formation and consumption. The central bank's interventions to support growth via asset purchases and loan facilities suggest that Beijing is managing growth carefully, which could limit currency upside if capital outflows resume.

Goldman's call is broadly aligned with macro strategists who see China as a beneficiary of US-led geopolitical instability. A stronger yuan supports Chinese consumers' purchasing power for imports and signals improving credit conditions. For investors, the thesis implies long CNY/short USD positioning and exposure to China-focused equities (FXI, KWEB) as potential beneficiaries.