Albert Edwards thinks a Brexit would be good for the UK’s economy.
And he also thinks all the hoopla surrounding the vote has drawn our attention away from another crucial event: the renminbi’s devaluation.
“…there is an argument that global investors have overly focused on Brexit at the expense of other more important macro events,” the colourful perma-bear wrote in a recent note to clients.
“We believe China’s ongoing stealth devaluation of the renminbi is far more important for the global economy.”
Notably, the renminbi has been pretty stable against the US dollar since the start of the year, so many have missed that it has continued to trickle downwards.
But, actually, China’s trade-weighted currency basket has dropped by about 10% since right before the August 2015 devaluation, which you can see in the chart shared by Edwards below.
(For what it’s worth, Capital Economics’ Julian Jessop also pointed out the same interesting detail back in May, arguing that the “stealth devaluation” was an “important nuance that many have missed.“)
As for what the significance of this is, here’s Edwards again:
“The Wall Street Journal has reported that this is a deliberate shift in policy link. China is now exporting its deflation, and my goodness it has a lot of deflation to export. In the Ice Age world, countries need to devalue to avoid deflation. So if sterling slumps in the aftermath of a Brexit vote there may be at least one silver lining outside the EU if the UK economy manages to avoid the quagmire of outright deflation.”