Cat Sister Sees More Yuan Depreciation

A top article in the finance section today start off by telling investors the RMB depreciation isn't over. "Cat Sister" from Big Cat Finance (大猫财经) warns investors that stocks are likely to take a beating, inflation is rising making for rapid gains in commodity futures and government bonds are a great trade for the second-half since rates are falling. As for homes, they'll probably rise since depreciation is accompanied by loose monetary policy. However, if there's a sudden plunge in the exchange rate or depreciation goes on for a long time, the PBoC might hike interest rates to defend the yuan. That could trigger a sell-off in real estate. No mention of gold.

iFeng: 人民币贬值:物价会涨吗?股市会好吗?房价怎么办?
Since the beginning of this year, the renminbi has been falling. Last Friday, the renminbi fell even more sharply, reaching 6.9 at a time, hitting the red line. On Friday, the central bank made a decisive move to raise the foreign exchange risk reserve ratio from 0 to 20%.

The central bank has taken the exchange rate and the yuan will not fall sharply. Is the RMB fully stabilized? It is still difficult to say.

What is the impact of RMB depreciation on everyone? What should I do when the RMB depreciates?
Cat sister gave you an analysis.
1. the depreciation of the renminbi, the first pain is the investors

Recently, investors should have had a personal experience.

The renminbi depreciated slowly in early May, but by mid-June, the devaluation of the renminbi suddenly increased, and A-shares fell as a slide. At the beginning of June, the Shanghai Composite Index was around 3,100 points. By August 6, the Shanghai Composite Index was only around 2,700 points, a drop of 13%.

A 10-year-old investor friend lamented the cat sister. Recently, there is no market at all. Whatever is done is a loss. He gave himself a long time and went to play.

Indeed, the stock market and the renminbi are a pair of brothers and sisters who have died together. When the renminbi depreciates, the A shares will die for you.

Looking back at the previous RMB depreciation stage, such as the 811 exchange reform in 2015, A shares just experienced a stock market crash, and are in a big bear market. When the exchange rate depreciated, the stock market fell faster, and the Shanghai Composite Index once fell to a stage low of 2850.

A further devaluation in the first half of 2014, the market will be better, the SSE will be in a bull market every day, and the small and medium-sized enterprises have begun to be in a bull market, but they have all dropped significantly during the RMB depreciation period.
How is renminbi depreciation affecting stocks

The stock market is an industry that is very sensitive to money. Generally speaking, the funds are willing to choose the currency to be appreciated. If the RMB depreciation is too obvious, the funds will leave here and invest elsewhere. Some of the money invested in the stock market has flowed outside, and the circulation of currency has decreased in the domestic market, so the stock market is likely to fall.
2. the devaluation of the renminbi, easy to cause inflation

The depreciation of the renminbi means that the currency has become cheaper, and the importation of things has become more expensive, which will cause domestic prices to rise and cash will become less and less valuable.

The recent stock market screams, and in contrast with the stock market trend is that the futures market is hot. Look at the commodity market: coke and other futures varieties rose by more than 10% in 4 trading days, and methanol and other varieties hit new highs.

Of course, there is more to this: crude oil, iron ore, coking coal, and manganese silicon all rise. Above the agricultural products, apples have reached new heights, and varieties such as japonica rice, early rice and strong wheat have all risen.

What everyone feels most obvious is that oil prices have risen.

On August 7, the domestic oil price was adjusted again. It took 2.5 yuan more to fill your tank. The price of oil has risen several times this year. Unconsciously, it has risen to 7.4 yuan from 6 yuan, and the rate has exceeded 20%.

Oil, iron ore, wood, soybeans, and food are all consumer goods that the country needs to import a large amount each year. They are all settled in US dollars. The current price increase has already appeared.

In May, the national pork price showed a trend of falling and rebounding. Recently, the price of pigs has risen even faster. The price of many places has risen above 14 yuan/kg, and the national average price has exceeded 13.5 yuan/kg.

Looking back at history, in the past, when the RMB exchange rate depreciated sharply, prices rose rapidly.

At the end of July, the Politburo meeting was scheduled to be adjusted. In the second half of the year, a prudent monetary policy and a proactive fiscal policy were implemented. This means that the market will have more money in the second half of the year and the inflation probability will be even greater.
3. national debt has become a good investment

The depreciation of the renminbi is a positive for commodities. The bond market is also a good investment variety, especially the national debt.

As a traditional hedging commodity, treasury bonds have repeatedly experienced interest rate declines and price increases during the depreciation of the renminbi. In addition, this year's liquidity easing is also good for the bond market.

The cat sister last wrote an article recommending the national debt "the basic confirmation of comprehensive easing, such assets foreign capital has been bargain-hunting", and continued to recommend government bonds in the second half.
Chinese bond performance is inversely correlated with emerging market earnings.
There is a type of national debt that can earn the volatility of the national debt, and can also earn interest on the national debt. It buys and sells in the stock account, which is the book-entry government bond.

The liquidity of book-entry treasury bonds is higher than that of savings treasury bonds. Although interest rates do not have high savings treasury bonds, prices can fluctuate according to market interest rates. When the market expects interest rates to fall, prices will rise. For example, some prices were around 91 yuan at the beginning of the year, and now the price has risen to 96 yuan. Investors can earn income through trading, and operations are comparable to stocks.
4. house prices, it is difficult to say

The depreciation of the renminbi, everyone is most concerned about housing prices, will housing prices fall?

In the past few years, the RMB exchange rate has also experienced several ups and downs, but the domestic house price trend has only one direction: up!

The depreciation of the renminbi means that the currency has become more numerous. For house prices,they are more likely to rise under loose monetary policy. However, if the depreciation is too strong, the exchange rate plunge funds outflow, which is obviously unfavorable to the economy. The government generally chooses to raise interest rates to maintain its own exchange rate, and interest rate hikes are likely to cause a sharp adjustment in the real estate market.

As far as China is concerned, the trend of housing prices is more inclined to look at policies in the short term, land in the medium term, and population in the long run. If the devaluation of the renminbi doesn't last long, the magnitude is not severe, then the impact on real estate won't be very strong.

The next time the RMB depreciation occurs again, which pits should I avoid? Are you getting it?

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