Goldman Sachs: Yuan Trades 25% Below Fair Value, Poised for Major Gains by 2026
Goldman Sachs just dropped a valuation bomb on the yuan. Their analysis paints a stark picture: the currency is currently trading a staggering 25% below its fair value. That's not a minor correction—it's a chasm.
The Path to Parity
So, what's the play? The bank isn't just pointing at a problem; it's mapping a recovery. Their models project a trajectory of significant strengthening, with major gains locked in for realization by 2026. This isn't speculative hopium; it's a calculated forecast from one of finance's most influential institutions.
Forget subtle shifts. This calls for a fundamental re-rating. When a heavyweight like Goldman highlights a disconnect this large, markets tend to listen—eventually. It's a classic case of the 'smart money' spotting a mispriced asset long before the herd catches on. The implication is clear: the current price is an anomaly, not the norm.
The clock is ticking on this valuation gap. While traditional forex might be gearing up for this move, the real lesson is universal: massive undervaluation never lasts. It just creates a coiled spring—and in finance, those always snap back. Usually right after the last skeptic has finally given up and sold.
Goldman disputes claims of export-driven weakness
Goldman strategist Teresa Alves wrote in a note dated Dec. 9 that “some argue that CNY undervaluation is a key driver of the competitiveness of Chinese exports,” but “we disagree,” saying the currency is “so deeply undervalued, the strengthening we project WOULD still leave the currency comfortably in inexpensive territory.”
Teresa’s comments came as debate increased over whether Beijing is keeping the yuan weak to manage trade uncertainty.
The International Monetary Fund has linked China’s rising exports and widening surplus to the currency’s real depreciation and urged the country to move toward a freer exchange rate.
The discussion has intensified after China’s goods trade surplus passed $1 trillion in the first eleven months of the year. Governments worried about overcapacity have pushed back on the rising volume of Chinese goods.
Goldman said countries losing market share may respond with their own currency declines, which would lift the yuan’s relative position in China’s trade basket. Teresa also said China’s current-account strength adds upward pressure.
Goldman models point to large mispricing
Goldman’s Dynamic Equilibrium Exchange Rate (GSDEER) model places the yuan’s fair value NEAR 5 per US dollar, with the currency trading around 7.06 on Wednesday. The bank said its Fundamental Effective Exchange Rate (GSFEER) model, which ties values to the current account, shows the yuan 12% undervalued.
The bank said the weighted average of both models places the currency 25% below fair value. Forwards for the fourth quarter of 2026 price the offshore yuan near 6.91, or roughly 2% stronger than its current level.
Across Asia-Pacific markets, traders reviewed China’s inflation numbers while waiting for the Federal Reserve’s decision.
Hong Kong’s Hang Seng Index traded 0.22% higher, while China’s CSI 300 closed 0.14% lower at 4,591.83 as consumer prices ROSE 0.7% from a year earlier, the highest since February last year, after a 0.2% rise in October. The gain matched a forecast from a Reuters poll.
China’s factory-gate prices fell 2.2% in November from a year earlier, extending the deflation cycle after a 2.1% drop in October.
Australia’s S&P/ASX 200 was little changed at 8,579.40. Japan’s Nikkei 225 slipped 0.1% to 50,602.8, and the Topix rose 0.12% to 3,389.02. South Korea’s Kospi fell 0.21% to 4,135, while the Kosdaq climbed 0.39% to 935.
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