Goldman says yuan 20% undervalued, boosts currency forecasts

What happened The Chinese yuan is more than 20% undervalued against the US dollar, according to Goldman Sachs Group, which expects the currency to keep strengthening over the coming year. The yuan remains well below levels justified by China’s export strength and external surplus, strategists including Kamakshya Trivedi said. They now see it at 6.80 in three months, 6.70 in six months and 6.50 in a year, up from 6.85, 6.80 and 6.70 previously. The currency is currently trading at around 6.80. “China’s external surplus is approaching unprecedented levels as a percentage of global GDP, reflecting deep levels of export competitiveness, and also a highly undervalued currency, with currency appreciation an equilibrium outcome of those forces,” the strategists wrote in a note dated May 8. The yuan is near its strongest level against the dollar since early 2023, buoyed by improving US-China ties and weakness in the greenback. Other Wall Street banks have also predicted further gains, with JPMorgan Asset Management saying that a “productive” summit between President Donald Trump and Chinese leader Xi Jinping may be a catalyst that pushes the yuan to 6.50. Goldman said while the meeting could be important in helping to stabilize trade relations, the case for a stronger renminbi is “more fundamental and longer-lasting.” Trump and Xi are scheduled for talks Thursday and Friday in Beijing. The bank added that the strength in recent People’s Bank of China fixings and a rise in exporter conversion ratios also suggest that “a gradual but sustained move is still the right baseline.” Jing Take For Western luxury houses with significant China exposure, a stronger renminbi is, at first glance, straightforwardly good news. Revenue earned in RMB — from a Chanel bag sold in Shanghai or a Cartier watch purchased in Chengdu — converts back into more euros or dollars when repatriated to Paris or Milan. Margins improve without any adjustment to pricing or volume. That arithmetic is simple, and the market knows it. The wealth effect compounds the picture. Currency appreciation tends to lift Chinese consumers’ purchasing power in relative terms, particularly abroad. Historically, that dynamic has correlated with stronger luxury spending both domestically and on outbound travel — the Paris boutique run, the Milan shopping day. It also reshapes the daigou calculus: a stronger yuan narrows the price gap between buying in China and buying abroad, which reduces the gray-market arbitrage that has long undermined domestic pricing power for major houses. Why China’s easing deflationary pressure is a structural positive for luxury pricing power Equally significant is what Goldman’s note implies about China’s deflationary cycle. Years of deflationary pressure bred a consumer psychology of deferral — the quiet assumption that waiting would be rewarded with lower prices. That mindset is corrosive to the premium pricing that the entire luxury model rests on. Data released Monday offered some encouragement: China’s consumer price index rose 1.2% year-on-year in April, reversing a 0.3% monthly decline recorded in March, while the producer price index climbed 2.8% year-on-year, according to the National Bureau of Statistics. Neither figure signals a dramatic reversal, but the direction of travel matters — and for luxury, even a gradual easing of deflationary pressure is a structural positive. Is yuan appreciation structural or diplomatic? The complication is whether this appreciation is structural or staged. China’s luxury slump since 2023 has been driven by something currency movements cannot easily reach: a deep shift in consumer sentiment, shaped by the anti-corruption climate, an anti-ostentation cultural turn, and a broader confidence deficit. A managed yuan strengthening, timed to a diplomatic summit, does not fix weak footfall in Chengdu or subdued conversion rates in Beijing’s SKP. Goldman Sachs itself signals the more fundamental case — that China’s external surplus and export competitiveness point to appreciation regardless of politics — but the luxury sector will need to see that translate into genuine domestic consumption recovery before analysts revise volume forecasts upward. For Chinese brands pushing international expansion — names like Bosideng, Icicle, Songmont scaling in Europe — the picture is more punishing. A stronger RMB raises the cost, in dollar and euro terms, of funding overseas operations that remain anchored in China: design, production, management. Expansion capital goes less far. That is an uncomfortable timing issue for brands already navigating a fragile home market and accelerating abroad. The headwind is, in fact, double-sided. A stronger RMB not only raises the cost of funding overseas operations from a Chinese base — it also compresses the RMB value of whatever hard-currency revenues those brands do generate internationally. A Chinese brand earning $1 million in the US converts that into fewer renminbi at 6.80 to the dollar than it would at 7.20. That deflates reported financials at home, not flatters them. Goldman’s estimate that the yuan remains more than 20% undervalued does mean the structural export competitiveness advantage hasn’t disappeared entirely — but it offers cold comfort to brands managing a squeeze on both the cost and revenue sides of international operations simultaneously. The one indirect tailwind is narrower: a stronger yuan increases Chinese consumers’ purchasing power abroad, which could lift any Chinese brand with a retail presence in high-footfall outbound destinations. For most, however, that remains a secondary and speculative benefit rather than a meaningful offset. What the Trump-Xi Beijing summit means for luxury brands with China exposure The biggest near-term variable sits in Beijing this week. If the Trump-Xi talks produce even a partial de-escalation of trade tensions, it removes a risk premium that has weighed on every major luxury group with China exposure. Luxury conglomerates LVMH, Kering, and Richemont have at various points seen their China exposure weigh on investor sentiment as the market awaited signs of a sustained recovery. A shift in tone — combined with yuan strength and easing deflation — could be enough to prompt a genuine re-rating, from risk to opportunity. What luxury strategists should not do is over-read a single summit. The more durable signal in Goldman’s analysis is the argument that the renminbi’s fundamental undervaluation, not diplomatic choreography, is driving the directional move. If that holds, and if it eventually reflects a genuine rebalancing of the Chinese economy toward domestic consumption, the implications for the sector are significant and lasting — not a quarterly blip, but a multi-year tailwind that changes the demand equation. The Jing Take reports on a piece of the leading news and presents our editorial team’s analysis of the key implications for the luxury industry. In the recurring column, we analyze everything from product drops and mergers to heated debate sprouting on Chinese social media.

Goldman says yuan 20% undervalued, boosts currency forecasts

How Bottega Veneta weaved China’s forever it bag

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Goldman says yuan 20% undervalued, boosts currency forecasts

How Bottega Veneta weaved China’s forever it bag