2018-06-22

Housing Lottery Frenzy in Shenzhen

"If you win a house in the lottery, you may instantly earn millions."

Shenzhen was going nuts over a housing lottery today. The homes offered are priced far below market prices. Winners of the lottery can "win" more than 2 million yuan. As lines at banks and real estate registration offices swelled, rumors of lines 5 kilometers long spread. The number of people getting divorced at the marriage office rose one-third (I thought the government had closed this loophole). The government put out a statement to squash the more exaggerated rumors.
The government statement 华润城润府三期火到要排队离婚买?官方辟谣来了
Notice

On June 21st, 2018, the SIPO approved the pre-sale of commercial housing of China Resources Chengrun Phase 3 project developed by China Resources Land (Shenzhen) Co., Ltd. (Shenzhen Xuzi (2018) Nanshan No. 006), which approved 741 sets of pre-sale housing. The average price for filing is 85,000 yuan/square meter. After monitoring, the Bureau found that there was information disseminated from the media, such as “printing 5km queues without proof of housing” and “marriage registration offices queuing for divorce to buy a house”. It was suspected of maliciously exaggerating or distorting the facts and disrupting the real estate market order in our city. The Bureau has informed the relevant authorities of the city's Internet, public security, and market supervision departments, and will continue to conduct investigations with relevant departments to severely investigate and commit maliciously fabricated information and disrupt the order of the real estate market.

Municipal Planning National Lands Committee Nanshan Administration

June 22, 2018
iFeng: 又见疯狂购房!深圳一个楼盘开盘几乎搅动了全城
Print without housing certification queued 5 kilometers? The marriage registry line up for divorce to buy a house? All kinds of rumors stirred the whole city for a time. The brokerage Chinese reporters rushed to the Shenzhen Futian Real Estate Registration Center and the Shenzhen Nanshan Marriage Registry respectively to find out the situation and found that these places were all presenting “the whole family mobilization”.

At the Futian Real Estate Registration Center in Shenzhen, a staff member at the scene told reporters that there are not so many people in ordinary times, and the number of people who inquire about real estate information today has soared, which is obviously higher than normal. The staff member added, "It may be related to the opening of China Resources 城润府."
The rumor mill ran wild, but there was an increase in activity that sparked it. People were indeed getting fake divorces:
In the Shenzhen Nanshan Marriage Registry, a divorcing family said that there are more than 40 people ahead of them. They still have to go to the bank after they get divorced, and they have to go home to pick up the children at 5 o'clock.
One classmate of this reporter stated that his father went to a bank that can handle personal credit report business and found that almost the whole bank was filled with people who came to inquire about credit information. Other business was almost collapsed and could not be handled.
The low price is enticing:
"75,000 furnished is already very cheap." Many people are so appraised, in fact, the most tempting is not the price, but the difference. Calculated with the minimum unit size of 89 sqm at 87,000 yuan/sqm or so, regardless of future house price fluctuations and other factors, and the market price of 110,000 yuan/sqm makes it 23,000 yuan per square meter cheaper, more than 2 million yuan less than existing home prices.
Econ 101 says price floors distort supply, price ceilings distort demand. The housing lottery has literally become a lottery because it is selling homes below market value. (For the same reason, in prior years the license plate lottery in Beijing saw massive participation by people who did not own a car because they could sell (gray/black market) the plate for a substantial sum of money.) Anyone can be a winner, but first they have to qualify for the lottery. Requirements include 2 million in cash and meeting various rules for buying a new home.
"Shenzhen China Resources City" stirs Shenzhen City

On the evening of the 21st, the “Shenzhen China Resources City” WeChat public number released, “China Resources City Phase III (Phase I), (Phase II), (Four Phase) sales publicity program” news, has aroused widespread concern.

Seen from this sales plan, home buyers need to provide 2 million earnest money in one day, but also need to provide proof of identity and relationship, real estate information check list, personal credit report and other information, non-needed households need to provide relevant social security information .
Purchase restrictions include marriage status since both husband and wife own their current home. People get around this restriction with a divorce:
However, due to the purchase restriction policy, many families have already lost their qualifications to purchase homes. It is a common phenomenon to acquire homes through false divorce. What is the situation of China Resources Town Runfu Phase III?

Just today, the Nanshan Management Bureau of Shenzhen Planning and Lands Commission stated in the notice on the pre-sale of the China Resources Urban Management Office Phase III that after monitoring, it was discovered that there was a “distributed printing without housing certificate 5 km queued” from the media. Line up for divorce to buy a house" and other information, allegedly maliciously exaggerating or distorting the facts disrupts the city's real estate market order.
Tthe reporter said he spoke with buyers who obtained divorces for the purpose of buying a home:
The brokerage Chinese reporter conducted field investigations and interviews with Shenzhen Futian Real Estate Registration Center, Nanshan Marriage Registry, and other places, and interviewed buyers who had purchased houses of China Resources City Runfu Phase III to check files and divorce.
The reporter found a high volume of traffic at the real estate registration center:
Today's Shenzhen coincided with the rainy season. In the afternoon, brokerage Chinese reporters rushed to the Shenzhen Futian Real Estate Registration Center. Even before entering the parking lot, it was found that vehicles entering and leaving the parking lot of the realty registration center were significantly more than in the past.

In the permit hall, the reporter saw long queues in the terminals and the consulting window for self-service inquiries. In contrast, other windows appeared to be deserted.


A staff member at the scene told reporters that usually there are not so many people, and the number of inquiries on real estate information today has soared, clearly higher than normal. The staff member added, "It may be related to the opening of China Resources Run Factory."
Then the reporter went to the marriage registration office to see if people were queing up for divorces:
Afterwards, the brokerage Chinese reporter went to the Shenzhen Nanshan Marriage Registration Office. At the registration office, the reporter saw that the hall was also filled with people and there was hardly any spare stool.

A staff member said that there was indeed a queue in the morning. From this staff member's point of view, today is the 22nd, which is commonly known as "double days," so the number of people coming to register for marriage will be more than normal, but compared to the special auspicious days, the number is not much.
The most auspicious "double day" being August 8th. The line at the marriage often did stretch out the door at one point:
However, the reporter interviewed several “tranquil” divorced families at the scene, all of whom stated that they were there to qualify for the China Resources City's lottery.

A divorcing family said that there were more than 40 people in from of them. They had to go to the bank after getting divorced, and then they had to go home to pick up the children at 5 o'clock.

Another divorced family claimed that there was no way to buy China Resources City except to divorce. Some time ago, the investment and investment projects belonged to the luxury residential area. The arbitrage amount was even greater, but the unit size was too large and exceeded their purchasing power.
The first box in the WeChat screenshot is a link to a story: divorce rose one-third on the day.
The first comment says: people taking a day off from work today are all preparing for the housing lottery.
The next comment says: Divorce, Divorce, Divorce, Buy Buy Buy, Marry Marry Marry, again Divorce, Divorce, Divorce, Buy Buy Buy, Marry Marry Marry, again.......and so on, defeat housing regulations!
The response: but the home is broken.
Response: "laughing so hard I'm crying" emoji.
The final comment is taken from the opening of the Romance of the Three Kigdoms: "The empire, long divided, must unite; long united, must divide."
One family also stated that the number of people lining up at the marriage registration office said they were running around to real estate registration center, several banks, and the amount of people at the marriage registration center is already small.

When this reporter was about to leave, the staff of the marriage registration office deliberately told security personnel to not let in anyone who did not have a reservations.
The two major scenes were staged "The Whole Family Mobilization"

It is noteworthy that, whether it is in the real estate registration center or the marriage registry, the reporter has seen many scenes of “family mobilization” with parents and children.

At the Real Estate Registration Center, the reporter encountered a homebuyer who was planning to identify, and he asked if the minor needed to be present there and was told that if the minor had an ID, he would not need to come.

In addition, the reporter also met with a number of elderly families who were checking records, among them a family asked whether there is a fast track for the elderly.

In the marriage registration office, several families with a child divorced. Some of them had just left, and some babies looked to be only a few months old and were held by their grandparents.
As for what's driving all this, the China Resources property:
Specific types and prices are as follows:

China Resources City is a high-end residential community in the core area of ​​Shenzhen. It has a total construction area of ​​approximately 2.8 million square meters, and is equipped with approximately 700,000 square meters of business. The approximately 440,000 square-sized Wanxiang Paradise has officially opened operations last year.

China Resources City was developed in five phases. Runfu is the first high-end residential building in China Resources City. At present, the first phase has all been sold out. Only a few apartments are sold in the second phase.

Comparing the price of the previous phase of China Resources City, the filing price of the third phase is really quite a bargain.

The reporter saw that the average price of existing housing in China Resources City is currently close to 110,000.
The lottery system and price controls have turned the housing market into a lottery:
A Shenzhen real estate investor stated that the opening price of China Resources City had considerable room for value increase. A friend of hiss recently bought a nearby old house and the unit price exceeded 90,000.

Means that the smallest flat 89 unit price of 87,000 or so calculation, regardless of the future price changes and other factors, compared with the market price of 110,000, 23,000 yuan per square meter cheaper, a difference of more than 2 million compared to existing homes.

It's the same price gap as with stock market IPOs, there is a price inversion between the new properties and the old properties. In some cities where the purchase restriction policy is implemented, the difference between the old and new home prices can reach 10,000 yuan/sqm. If you win a house in the lottery, you may instantly earn millions.
Here's photos of the properties everyone is vying for:
The activity in Shenzhen today is another sign that the government has not quelled housing fever with the lottery system, but has instead stoked it. The main flaw is the price controls, in this case creating excess demand because prices are below market. Additionally, recent evidence shows credit is going around government restrictions and still flowing into the real estate market. The government is starting to crackdown harder on illegal funding practices. Yesterday, I posted Beijing Banks Violated Regulations, ¥36 B in Consumer Loans Went Into Real Estate. It is conservatively estimated that mortgage lending was 27 percent higher than reported in Beijing because consumer loans proceeds were diverted into real estate. Another Chinese article linked to in the post described how banks are cracking down on cash withdrawals from credit cards used for real estate.

This post from China Banking News puts some numbers on how much money could be flowing through credit cards: Chinese Consumers Use Credit Cards to Invest in Real Estate and Stocks:
The problem of the illicit “cashing” (套现) of credit cards had become increasingly widespread in China, with as much as 1 trillion yuan in funds obtained each year via the method.

“Cashing” or “taoxian” refers to an illicit method of obtaining cash via the use of credit cards for fake transactions or contrived product returns.

While in the past a single point of sales (POS) system corresponded to a single merchant, Wang Weidong (王卫东), chief manager, Bank of Communications Credit Card Center, said to 21st Century Business Herald that in China today a single POS machine can cater to many thousands of merchants, and thus be readily used to fabricate false transactions.

As a consequence Bank of Communications launched a crackdown in the first quarter of this year on the use of POS systems by direct sales personnel.

...Data from the Chinese central bank payments system indicates that as of the end of the first quarter of 2018 a total of 612 million credit cards had been issued in China, for an average of 0.44 per person.

13.14 trillion yuan in credit had been extended via credit cards, for an average of 21,500 yuan per card.
As long as credit supports prices, the gap between existing and new homes sold by lottery will remain. Local governments will likely announce even stricter controls to weed out fake divorces and other methods of beating the system, but until credit growth subsides, home prices will see a persistent bid. The conundrum for the government is that housing is supporting the economy amid regulatory and monetary credit tightening efforts. The push for SME lending, which will soon include a targeted RRR cut, should also intensify because the government can ill afford to lose real estate sector growth without replacing it.

Fed Balance Sheet Contracts $9 B, All MBS

The Fed's balance sheet contracted by $9 billion in the week ended June 20. It was all MBS, treasuries rose a $0.1 billion.

The S&P 500 Index lost 8 points for the week ended June 20.

The Fed has $22 billion in reductions to go this month. It hasn't reduced any treasuries this month (the reduction that is in the June 6 report came on May 31). June 30 is another big date for maturing treasuries, I expect all of that reduction ($19.9 billion by my count) will fall in the week ending July 4 report.

Below are the weekly change in the Fed balance sheet and S&P 500, along with the change in both indexed to December 27, 2017 (last Wednesday of the year).

2018-06-21

China Allied Industries Ask Congress to Control Trade Policy

Does this qualify as Chinese collusion? By the Russia collusion standards, yes. (Note: The Russian collusion standards and narrative are nonsense.)

iFeng: 新华社:美国商界团体呼吁国会加强对美贸易政策的监督
Nearly 60 U.S. business groups such as the American Petroleum Industry Association, the American Soybean Association, the National Foreign Trade Council, and the National Federation of Retailers have jointly called for Congress to strengthen supervision over trade policies. Rebalancing the power of Congress and the executive branch to manage trade policies.

According to a statement issued by the National Foreign Trade Council on the 19th, the above-mentioned business groups wrote to Hatch, the chairman of the Senate Finance Committee, and Brady, chairman of the House Committee on the National Assembly Fundraising Committee, on the 18th and strongly supported the two congressional committees to strengthen supervision over US trade policies. A hearing on the President’s exercise of trade-related powers was promptly held and consideration was given to the need to amend existing mandates in order to strengthen the role of Congress in implementing trade policies.

These business groups said in their letter that, as representatives of a large number of U.S. manufacturers, retailers, technology companies, farmers and agribusiness companies, and other supply chain stakeholders, they are increasingly using tariffs and import quotas by the U.S. government. There are growing concerns about the resolution of trade disputes. "The unilateral use of tariffs by the executive authorities" has broken the long-standing power balance between the National Assembly and the executive branch. This balance has effectively promoted the economic growth of the United States over the past few decades and has provided US manufacturers, service providers, and agricultural husbandry. The people provided more export opportunities.
Xinhua: U.S. business associations urge greater congressional oversight of Trump's trade policy

Anonymous Bond Auctions Arrive as Defaults Rise

China has released new rules for anonymous bond auctions of defaulted and high-risk debt. It's timely because institutions do not want to trade these bonds publicly:
In its view, current institutions are reluctant to trade risky bonds in the open market. First, they are unwilling to expose themselves; secondly, large institutions in particular have concerns: considering that the market will doubt whether there are any problems with the bonds they are selling. (Whether or not there actually is a problem), and the market speculates that large institutions know bad news ahead of time so selling leads to market panic.

Reuters: China plans to introduce anonymous bond auctions system: sources
China plans to introduce an anonymous bond auction system to support transactions of high-yield, low-liquidity bonds, two sources with knowledge of the matter said.

In a notice confirmed by the sources, the China Foreign Exchange Trade System (CFETS), also known as the National Interbank Funding Center, said that the anonymous bond auction system would apply to bonds with high-yield and low-liquidity characteristics.
The rules came out today.

Sina: 债券匿名拍卖业务细则出台 利于提升违约债券流动性
According to Circular 192, the bonds applicable to the anonymous auction business should meet relevant standards for circulation in the inter-bank bond market, including but not limited to default bonds, bonds affected by default, and low-liquidity bonds such as the sub-tranche of asset-backed securities.

  The specific auction bonds are determined by the market dismantling center's intention to pool the market, and anonymous auctions are held from time to time. Participating agencies may submit their intention to anonymously borrow bonds to the interbank lending center through e-mail or telephone.

  On the auction day, the anonymous auction of bonds is divided into two phases: two-way quotations and centralized bidding. The duration of each phase is based on the announcement of the interbank lending center.

  In the two-way bidding stage, transactions cannot be matched. The participating institutions fully consider the factors affecting the pricing of the underlying bonds according to their own needs, and issue a two-way quotation within a range of pricing differences, and the system displays the quotation prices in real time.

  After the two-way bidding period is over, the trading system determines the price range during the concentrated bidding period, and the price range is located between the better bid price and the better selling price.

  In the phase of concentrated bidding, the participating institutions may quote in the price range determined in the two-way bidding stage. The trading system calculates the unified transaction price based on the principle of price priority and time first, and uses the principle of maximum matching, and determines the buying and selling of the counterparty after blacklist filtering.

  In terms of risk control, Circular 192 stipulates that participating organizations that have entered into transactions through anonymous auction of bonds must not conduct reverse transactions with the same counterparty directly or indirectly on the same underlying bond within 5 working days. Between parties, for the same bond, one party buys first and then sells, and the other sells first and then buys. Except when reverse trading is achieved through anonymous auctions). If there is indeed a need, it is necessary to provide the necessary explanation of the official seal to the interbank lending center.

  A state-owned big trader told a 21st Century Business Herald reporter that under the background of increasing defaults on bonds, the document was conducive to the trading of defaulted bonds and increased bond liquidity.

  In its view, current institutions are reluctant to trade risky bonds in the open market. First, they are unwilling to expose themselves; secondly, large institutions in particular have concerns: considering that the market will doubt whether there are any problems with the bonds they are selling. (Whether or not there actually is a problem), and the market speculates that large institutions know bad news ahead of time so selling leads to market panic.

Beijing Banks Violated Regulations, ¥36 B in Consumer Loans Went Into Real Estate

Caijing: 9银行违规输血地产超360亿 未来若有违规或面临更严惩罚
Another confirmation of tightening property market regulation. On June 20, the "Report of the State Council on Auditing Work of the Implementation of the Central Budget and Other Fiscal Revenues in 2017" (hereinafter referred to as the "Report") issued by the National Audit Office showed that the audit found that nine large state-owned banks illegally provided financing to the real estate industry. In addition, 36.87 billion yuan, part of the individual consumer loans that were spot checked, actually flowed into the property market. The industry believes that this audit is a big inspection of the current real estate deleveraging. If various types of funds violate the regulations in real estate in the future, it is expected that the bank's credit department may face severe punishment.

According to industry insiders, the Audit Office annually audits the more prominent problem areas in the current market. For the bank's illegal "blood" property market data was included in the "report", the Central Plains chief analyst Zhang Dawei said that the release of the data itself is the performance of the property market to strengthen control. Yan Yuejin, research director of the Think Tank Research Center at the Yiju Research Institute also believes that this is obviously a big inspection of the current real estate deleveraging, which is good for the industry.

...However, Zhang Dawei pointed out that the Bank’s unlawful provision of financing to the real estate industry with funds of RMB 36.287 billion may not be all, particularly since 2017, when consumer loans suddenly skyrocketed, there is suspicion of going to real estate. Now that financial regulation has led funds into entities, banks have often violated regulations, packaged funds, and raised costs to enter real estate, which has increased market risk, while the real economy has still not received funding.
This is not a small number even if only 36 billion. In 2017, individual mortgage lending in Beijing totaled 136.6 billion. That's an increase of 27 percent beyond what was reported. If the real total is higher, the drop off in lending reported at the end of 2017 greatly overstated the slowdown in real estate lending. this helps explain why real estate prices keep zooming ahead despite government regulations. The discovery signals the government has caught on to the diversion of credit into real estate. Now the question is will official mortgage lending increase as this credit moves into the proper channel or will housing activity and home prices begin declining as credit restrictions kick in?

Elsewhere, banks are tightening up where credit flows through credit and debit cards: 楼市调控持续 银行限制信用卡房地产类消费
An announcement by Ping An Bank indicated that when a credit card was traded by domestic real estate merchants, the monthly transaction limit for RMB was adjusted from RMB 30,000 to RMB 10,000, and the cumulative limit for RMB 100 million per year remained unchanged. It is worth noting that the limit of 30,000 yuan is a quota announcement issued by Ping An Bank on September 27 last year. This announcement also states that it is not possible to conduct real estate transactions overseas.

Ping An Bank is not the only bank that currently imposes restrictions on the purchase of credit cards. On August 16 last year, the Credit Card Center of the Agricultural Bank of China issued an announcement to limit the amount of credit card purchases. The accumulated daily transaction amount of credit cards for real estate merchants must not exceed 50,000 yuan, and the cumulative monthly transaction amount must not exceed 100,000 yuan. It must not exceed 100,000 yuan, and the accumulated annual transaction amount shall not exceed 200,000 yuan. The transactions of credit card merchants in the real estate category shall not be applied for instalments or bills in installments.

On the same day, the Agricultural Bank of China also issued an announcement indicating that cash advances through ABC, including cash withdrawals, cash transfers, cash staging, etc., can only be used in the consumer sector and not in non-consumer fields such as production, operations, and investment. Including home purchases.

The CCB credit card center also announced in July last year that funds obtained through CCB's cash advance can only be used in the consumer sector, and should not be used in non-consumer fields such as home purchases.

Why Did A-Shares Drop Again? Yuan Depreciation Fears, Trade War, Technicals

Everything is horrible again in China thanks to a modest drop in the A-share market.

iFeng: 谁是大盘杀跌的幕后黑手?三大利空突袭
Who is the black hand behind the curtain?

I. Risk of RMB devaluation approaching

On June 21, the onshore renminbi fell below the 6.50 integer mark against the US dollar for the first time since January ; offshore renminbi fell below the 6.51 yuan mark against the US dollar. As of the press release, onshore RMB against the US dollar reported 6.5035.

Deng Haiqing, chief global economist at Haiqing FICC Channel, believes that the devaluation of the RMB exchange rate is a high probability event. In the midst of the divergent economic trends in China and the United States, the differentiation of the US-China monetary policy, and the appreciation of the US dollar, the Chinese policy layer should never repeat the tragedy of “abandoning foreign reserve and security exchange rates” from 2014 to 2016. Instead, it should imitate Europe and Japan (2014- In 2015, the exchange rate of the Euro and Japanese yen depreciated by 20%, which in turn promoted the economies of Europe and Japan, avoided normalized intervention in the foreign exchange market, and allowed the RMB exchange rate to depreciate at a reasonable level. In the context of Trump's unbelief, the trade issues between China and the United States have intensified, completely changing the basis for the equilibrium exchange rate of the renminbi against the US dollar, and the United States has no reason to criticize the devaluation of China’s exchange rate if it has the wrong circumstances. Instead, the devaluation of the renminbi can greatly improve China's passive situation in the trade war and allow China to gain greater room for maneuver.

Second, the trade war dark clouds

In recent days, Sino-U.S. trade frictions have continued to hit favorable news, especially in the United States.

The Spokesman of the Ministry of Commerce announced at the press conference on the 21st that on the basis of the consensus reached in Washington on May 19th, the two sides conducted specific consultations on agriculture and energy in Beijing in early June and were widely welcomed by all parties. It has been agreed that the manufacturing and service industries will conduct specific consultations in the near future, and at the same time conduct specific consultations on the structural issues of bilateral concern.

The Chinese side believes that the previous consultations between the two parties are positive and constructive. They are in the interest of both peoples. They conform to the established rhythm of China’s reform and opening up and are in line with the principles of the WTO. However, it is deeply regrettable that the US is becoming more volatile and intensifying. To provoke a trade war, the Chinese side has to make a strong response.

Third, the market is still not completely out of the shadow of the crash

Analysts believe that after the release of pessimism and concentration of risks, the market will soon catch a breather, especially the "self-rescue behavior" began to stir, and the index has also rebounded after a sharp fall, but the market is still in the risk and emotional digestion , short-term Did not release the rebound signal, so there are still repeated here.
When will A shares bottoming be completed?

For the short-term market, Tianxin Investment stated that the current market confidence is still devastated by the trade war, and the long-term axis of the trade war is still continuing. The external market is subject to greater uncertainties, so the short-term market needs to be stimulated by external factors. It is the buffer of time that can better change the current trend. With the release of panic, the appearance of heavy yin is also accelerating the formation of the bottom state of the market. From a technical point of view, the stock index needs to pay attention to an integer mark of 2900 points, and the GEM index is still in an empty state. After the new low, the overall trend needs to be reconstructed.

Tianxin Investment indicated that the construction of the bottom of the market is not a one-off process. It can be effectively confirmed after repeated depreciation and recovery. At the same time, changes in the external environment will also have a significant impact on the current market conditions. Therefore, in the recent operations, the control is good. His own desires and position, waiting for the formation of the bottom , while seizing the opportunity to fall out, low position Jiancang blue chips with performance support and well-growing technology stocks.

Xiangcai Securities said that due to the plunge on the first day of the festival (19th), the market is currently in a more panic-stricken atmosphere . This atmosphere needs a certain period of time to repair, so the index room and intra-block return The repetition is also normal, but investors do not have to be too panicky, and the probability of a lower limit of 1,000 shares will be greatly reduced. Although the disk continues to adjust today, the stocks of the two cities fell to a total of about 90 stocks.

Xiangcai Securities believes that since the bull market peaked in June 2015, there have been several consecutive major falls in the market in the past three years. The reasons for each major fall are different, but there is a commonality: the market after each major crash There has been a relatively obvious band rally market , and in most of the band's rally market, no matter how subject stocks are replaced, the new shares have never been absent. In other words, the probability that the new stocks will become the main force for the future rally is very high, but only among them. The opportunities for the near-end, high-quality, and underestimated new shares are relatively large.

In view of the current market recovery after the sudden fall of popularity takes time, repeated will still exist, but this does not affect the perspective of investors to upgrade the strategy, Xiangcai Securities proposed to do a good job in advance of high-quality varieties of strategic attention and tracking to prevent the broader market suddenly caught the bottom after hitting the bottom . Due to the fact that market funds are still lacking, we are still pinning our perspective on small-cap stocks , especially those with excellent quality, low valuation, and high growth , for possible band opportunities that may occur after a continuous plunge .

Yuan Depreciation Expectations Return

The yuan has completed a short-term topping pattern. It broken the uptrend support in place since the late 2016/early 2017 bottom. The next area of support/resistance is in the mid 6.60s. If the yuan closes its performance gap with the euro this year, USDCNY would trade in the mid-6.60s.

A top headline in China today asks, what's the fallout from yuan depreciation? This article isn't great in its analysis, but it is great in that it tells us what's on the minds of Chinese investors. Depreciation expectations are waking up from their slumber.

iFeng: 人民币贬值究竟意味着什么?
Why is the U.S. dollar "more valuable"

The current 100 US dollars can be exchanged to 645 yuan, indicating that the exchange rate of the US dollar against the yuan is roughly 6.45. And about a few months ago when we were Spring Festival for the Year of the Dog, the exchange rate was 6.25, which means that 100 US dollars could only be exchanged for 625 yuan. It can be seen that compared with the Spring Festival, the current dollar is more valuable, which also shows that our RMB has depreciated.

Why did the dollar become more valuable in the past few months? The reason is that the economic prosperity of the United States continues to rise. Just a few days ago, the Fed announced an increase in interest rates. The market also expects that the United States will raise interest rates twice this year, and raising interest rates means that the price of assets denominated in dollars will rise. Not only that, the U.S. government expects their economic growth rate will rise to 2.8%, and inflation expectations will continue to rise. This further strengthens the global market’s expectation of a warmer U.S. economy and stronger asset prices.

More importantly, China has not followed the United States to raise interest rates. As a result, the level of interest rates between the United States and China has widened. Together with the strong US economic expectations, it will attract funds from the world and may include some overseas funds in China, and switch to the United States for greater investment. income. Under the combined effect of these factors, the number of people who want to use their own currency to exchange dollars will increase. Under the effect of supply and demand, the dollar will become more and more valuable.

As an example. The U.S. dollar index was very weak last year. In January 2017, the U.S. dollar index was around 103, but then it continued to decline. It fell to 92 in September, and even fell to around 88 before the Chinese Lunar New Year this year, compared to the beginning of last year. It went close to 15%. However, some economic indicators released by the United States after this appeared to be very strong. The sustained rapid rise of the US dollar since mid-April this year has risen from 89 to 95 now.

So from this perspective, the United States, with its global position and optimistic economic expectations, may continue to attract global funds for some time to come. The US dollar index is also expected to continue to strengthen. Therefore, except for certain countries or regions that have a fixed linked exchange rate system with the US dollar, the exchange rate between other non-US currencies and the US dollar has been depreciating without exception.
he overall renminbi remains strong

However, different non-U.S. economies have different levels of depreciation of the U.S. dollar. For example, the renminbi depreciated by about 3% against the U.S. dollar in the past two months. In the same period, the euro depreciated by more than 6% against the U.S. dollar. This is because the European economy is weaker than China and the regional political situation is not stable.

For another example, the Russian ruble depreciated against the U.S. dollar in the same two months, exceeded 4%, the South African rand depreciated about 14% against the U.S. dollar, and the Argentine peso depreciated against the U.S. dollar by more than 37%. In contrast, the renminbi against the U.S. dollar rose from a level close to 7 to 6.25 in February of this year at the beginning of 2017. During this period, the appreciation rate was close to 11%. The depreciation of 3% in the most recent two months was really not a big deal.

The sudden and significant drop in the Chinese stock market on June 19 may be a catalyst for market concerns. On the evening of the same day, the Governor of the People's Bank of China, Yi Gang, said in a heavy speech that China’s current economic fundamentals are good, its economic growth has increased its resilience, its total supply and demand has become more balanced, and its growth momentum has been accelerated. This year, the renminbi is one of the few currencies that have appreciated against the US dollar. one. Subsequently, A shares began to restore its rationality yesterday, which greatly eased market concerns.

In other words, since the U.S. economic recovery is expected to be even stronger, the Fed will raise interest rates several times in the future. Judging from the fundamentals of the economy, the two-way fluctuation in the exchange rate of the renminbi against the U.S. dollar is also a normal phenomenon. Contrarily, if the Chinese economy continues to decline and the yuan rose quickly against the dollar, that is rather a worrying thing.
Since USDCNY already rallied past 6.90 it may be the market won't be as jittery about a yuan depreciation. Outflows and depreciation expectations may not build as quickly as they did in 2015 and 2016. Still, there isn't a lot of room for this narrative. After today's move in the yuan, a 7.6 percent rally in USDCNY takes it to 7.00, at which point depreciation expectations will return with a vengeance. The market is relatively calm in a very narrow range between USDCNY 6.2 and maybe 6.9. Below 6.2, exporters go bust. Above 6.9 there could be significant outflows and financial market pressure.
RMB material maintains two-way fluctuations

Why are domestic investors worried about the devaluation of the renminbi? In fact, this is still "doing more thinking" in action. The most common and most popular investment method in China is undoubtedly the stock market. The vast majority of ordinary investors still rely on rising stock prices for gains. Therefore, it is easy for the subconscious to believe that no matter what the rise is right, the fall is wrong and it is wrong. The exchange rate of RMB against the US dollar was applied.
The most popular investment is housing, followed by wealth management products and trust loans, then stocks.
The exchange rate is a ratio between currencies. For ordinary domestic people, the dollar's exchange rate has gone up and down, and its impact on work and life is actually not great. In general, only those companies that need to rely on overseas markets in the areas of raw materials, product sales, etc., are likely to be affected by changes in exchange rates.

For example, domestic air transport companies need to rely on fuels such as oil imported from overseas, and oil is basically denominated in U.S. dollars. Once the RMB depreciates against the U.S. dollar, the RMB income from its service sales is used to exchange dollars for fuel. It will suffer more than before. On the contrary, the domestic garment production and trading enterprises will sell clothing shoes and hats produced in the United States to the US, and convert the US dollar into Renminbi for the payment of wages for domestic garment workers. Because the RMB depreciates, so the same dollar income can be Change to more renminbi, so the devaluation is beneficial to this clothing company. On the contrary, when the renminbi continues to appreciate against the U.S. dollar, domestic exporters such as garments and textiles will continue to be affected. In fact, under the current macroeconomic conditions of China's current economic downturn, new and old kinetic energy conversion, and financial deleveraging, the devaluation of the RMB is not a bad thing.

Therefore, the current trend of RMB depreciation against the U.S. dollar is both reasonable and consistent with the expectation of Sino-U.S. economic fundamentals. At the same time, relative to most developing countries, the RMB exchange rate still maintains its existing firmness and balance. It can be said that in the coming period of time, the trend of the depreciation and appreciation of the renminbi against the US dollar will continue, and the two-way exchange rate fluctuations will become more apparent.

U.S. Big Stick Negotiating Won't Work on China

iFeng: 商务部:美方举着大棒谈判的手段对中国不管用
The United States is accustomed to holding big sticks to negotiate, but this does not apply to China. This irrational behavior is not conducive to solving problems.

Will make a strong response to the U.S. through comprehensive use of various measures including quantitative and qualitative tools

According to Gao Feng, if the United States introduces a so-called taxation list and adopts a method of distorting international trade and leads to unfair trade, the Chinese side is fully prepared to comprehensively use various measures including quantitative tools and quality tools. Make a strong response and firmly defend the interests of the country and the people.

The Sino-U.S. economic and trade consultations achieved results once, but the U.S.

The Spokesman of the Ministry of Commerce announced at the press conference on the 21st that on the basis of the consensus reached in Washington on May 19th, the two sides conducted specific consultations on agriculture and energy in Beijing in early June and were widely welcomed by all parties. It has been agreed that the manufacturing and service industries will conduct specific consultations in the near future, and at the same time conduct specific consultations on the structural issues of bilateral concern. The Chinese side believes that the previous consultations between the two parties are positive and constructive. They are in the interest of both peoples. They conform to the established rhythm of China’s reform and opening up and are in line with the principles of the WTO. However, it is deeply regrettable that the US is becoming more volatile and intensifying. To provoke a trade war, the Chinese side has to make a strong response. The United States is accustomed to holding the means of negotiating the big sticks, but this does not apply to China. This irrational behavior is not conducive to solving problems.

U.S. accuses China of theft of intellectual property rights is a serious distortion of reality

Gao Feng said that China’s position is consistent and clear. The U.S. threat to formulate a 200 billion U.S. dollar commodity taxation list is a practice of exerting extreme pressure and blackmail on trade protectionism. The misuse of taxation means by the United States and the provocation of a trade war in various parts of the world will seriously undermine the world trade order and harm the interests of its trading partners. It will also hurt the interests of its own businesses and people. This behavior is unpopular. The United States itself has a lot of structural problems, but it always treats other countries as scapegoats for its own problems and accuses others. The U.S. accuses China of stealing intellectual property rights and forcing technology transfer is a serious distortion of history and reality. In the process of China’s reform and opening up, many foreign companies proceeded from their own interests and developed good technical cooperation with Chinese companies. This is a typical form of market contract behavior, and foreign companies have received well-known and lucrative returns. The U.S. side blames these basic facts and accuses China of negating property rights and credit awareness, negating the spirit of the contract, and negating market laws.

No matter how the attitude of the US changes, China will respond calmly.

How will China-US economic and trade disputes develop in the future? Gao Feng said that the US’s fickleness is obvious to everyone. What I want to emphasize is that no matter how the attitude of the US changes, China will respond calmly. We will adhere to the established rhythm, persist in taking the people as the center, firmly push forward the reform and opening up, firmly advance the high-quality economic development, accelerate the construction of a modern economic system, and manage our own affairs well. China has a bright economic future and great potential for development. We are full of confidence.