Depreciation Feats Ignited By Tuesday's Yuan Decline

JRJ: 刘柯：人民币贬值上市公司喜忧参半

　For the depreciation of the renminbi, it should be expected. Why do you say this way? Although the renminbi and the US dollar are not directly linked, the renminbi has been keeping a close eye on the US dollar. The continuous increase in interest rates in the United States will inevitably make the US dollar stronger and stronger, and the renminbi will depreciate accordingly. However, it is very surprising that in order to maintain the competitiveness of export products, the United States has been raising interest rates so many times, but the dollar has been tepid, and the reference to the depreciation of the renminbi is missing. The renminbi has appreciated a lot this year. The current depreciation of the renminbi is simply to smooth out the appreciation this year. Although the strong dollar is not in line with the economic interests of the United States, the market has its own laws, and the US interest rate hike attracts global liquidity. The dollar is cannot not be strong.

The depreciation of the renminbi is based on the fundamentals of the domestic economy. Such a moderate devaluation is acceptable and not a bad thing. Weak renminbi is good for exports because international trade is mostly settled in US dollars, while domestic production is settled in renminbi. For example, the previous earning of 100 US dollars was 640 yuan, and now it is 660 yuan. The exchange gains came up. Moreover, the depreciation of the renminbi can lower the price of Chinese exports and increase the competitiveness of China's export products. Especially in the case of increasing trade barriers in Europe and the United States, we need to increase exports to non-European and American regions. Welcome cheaper and competitive products.

　　The depreciation of the renminbi is mixed for listed companies . Companies with large import volume have benefited a lot from the appreciation of the renminbi. For example, China Southern Airlines ( 7.54 -9.48% , diagnostic stocks ), which purchases a large number of aircraft, has a large amount of US dollar debt, and the exchange rate of light is more than 10 per year. Billion. The companies with large export volume have previously suffered exchange losses from the appreciation of the renminbi. Now they can share the exchange gains from the devaluation of the renminbi, which is why the listed companies in the past few days have shown strong performance, because China is a big exporter of clothing. Therefore, companies with a large proportion of export business are expected to benefit from this round of RMB depreciation. For example, Leybold High Tech ( 5.65 +0.71% , diagnostic stocks ), 95% of the products exported, the money earned in these years due to the appreciation of the renminbi are working in white, in 2017 only exchange losses reached 81 million, spread to each share 0.11 yuan, while the company's net profit for the year was only 140 million, exchange losses accounted for nearly 60% of net profit.

CNFOL.com: 人民币贬值对投资者投资方向的影响 (How renminbi depreciation affects investors)

First of all, it is worth noting that the reason for the large depreciation of this round of RMB is the rapid appreciation of the US dollar. After the US dollar entered the appreciation channel, every time in history, it brought great pressure on non-US dollar currencies, which brought great impact and impact on emerging market regions. After the US dollar entered the appreciation channel, in order to confuse non-US dollar currencies and emerging market regions, it often adopts hidden and devious tactics to blind up emerging markets, let the emerging markets relax their vigilance and relax, that is, under the Fed’s rate hike channel, the US dollar will depreciate even It is a large depreciation. This makes non-US dollar currencies and emerging markets think that the dollar will not appreciate again, leading to blood loss in emerging markets. At this moment, the US dollar suddenly turned to appreciation and appreciated by a large margin, resulting in a sudden sharp depreciation of emerging market currencies, making emerging market countries unprepared, unable to respond, or possibly experiencing a rapid financial crisis.

The history is strikingly similar. After the US dollar entered the interest rate channel, the Fed began its quantitative easing in 2014 and raised interest rates for the first time in December 2015. At the beginning of the US dollar, the US dollar index began to rise. The US dollar index once broke through 100, and then it quickly depreciated and went straight to this year. The US dollar index of 89 in April was a historical low. During this period, all countries relaxed their vigilance against the appreciation of the US dollar. They all believed that the US dollar had completely declined. Because the Fed raised interest rates, the US dollar did not rise up against it, seriously violating common sense and laws. However, it has never been thought that the US dollar has almost stunned the market from the beginning of May, and the dollar index has risen from 89 to 95.2 in just over two months. It quickly put tremendous pressure on non-US dollar currencies including China's RMB.

The currency defense war in the emerging market areas headed by Hong Kong is full of smoke. The currency crisis in most emerging market countries has intensified, and capital outflows have been under pressure. Including the Hong Kong Special Administrative Region, the foreign exchange has been used to intervene in the exchange rate.

The article advises avoiding gold because USD strength will lower the prices, and recommends some stock sectors. What I find most interesting is the narrative. It is absolutely true that the USD strength is responsible for the yuan's depreciation. It is also absolutely true that this might not always be the case and at a certain point, yuan holders, investors and speculators won't care what the reason is, they will change their behavior because they don't want to lose from or want to profit from the trend.

Think.China.com goes full bullish and says the yuan will rise again: 人民币贬值忧虑弥漫？未来将重回升势

In summary, since the beginning of this year, China's current account has experienced a significant decline, partly due to the increase in labor costs in China and the passive migration of labor-intensive industries. Part of the reason is that China has actively raised environmental standards, high pollution and high energy consumption. The industry was abandoned by us. Therefore, from a more macro perspective, the decline of China's current account is a kind of “mapping” of China's initiative to leverage, structure, and transform. However, considering that the current account is the most solid and stable support of a country's currency, the renminbi exchange rate naturally depreciates as China's current account declines. This is the natural logic for the renminbi to follow the economic fundamentals. Correspondingly, with the deepening of China’s policy of deleveraging, the RMB will continue to have the pressure and space to continue to depreciate in the short term.

On the other hand, from the current point of view, China is still the world's most popular direct investment country. In particular, China is now vigorously promoting opening up and relaxing foreign investment restrictions, especially China's short-board and service trade opening to the outside world. . It can be expected that in the future, with China's de-leveraging, restructuring, and transformation, the renminbi will return to the uptrend.