Break 7 and go with the market without strong depreciation expectation
On February 3, on the first day after the opening of the Chinese new year, the onshore RMB exchange rate broke 7 against the US dollar, the largest one-day decline in nearly half a year. However, the market was not too surprised. During the Spring Festival, although the offshore market is closed, the RMB exchange rate against the US dollar in the offshore market has declined and broken the 7, which has a high degree of correlation.
In the eyes of market participants, the recent devaluation of RMB is on the one hand a normal callback after the signing of the first phase of economic and trade agreement between China and the United States before the Spring Festival. On the other hand, the U.S. dollar index has continued to strengthen in recent trading days. Other non-U.S. currencies such as euro, pound and yen have all been devalued. The small decline of RMB against the U.S. dollar is also on the go.
Xie Yaxuan, chief Macro Analyst of China Merchants Securities, believes that from the offshore market to the onshore market, investors have three concerns: first, the development prospect of the epidemic is uncertain; second, international investors consider selling Chinese stocks and bond assets due to hedging; third, the extension of the Spring Festival holiday has a negative impact on Februarys foreign trade data.
Compared with the stock market, the impact of major emergencies such as epidemic on the exchange rate is much more indirect and complex. This kind of influence not only benefits the space, but also benefits the time. One example is that after the 3.11 tsunami in Japan in 2011, the demand for yen increased greatly due to the post disaster financing and reconstruction, and the yen rose to a record high, even requiring coordinated intervention by the group of seven (G7).
From another point of view, A-share fell sharply on the first day of opening after the Spring Festival on February 3, but foreign investors bucked the trend and bought a lot. The net inflow of capital from the northern part of China reached 18.191 billion yuan on the same day, reflecting the long-term optimism of foreign investors on the A-share market. Deutsche Bank is optimistic about RMB bond assets in a recent report, which said that although the epidemic was a risk event in the first half of the year, RMB bond assets have become a good type of risk aversion.
On the whole, the logic of RMB exchange rate depreciation caused by the epidemic is not true.
The short-term economic pressure has not been shaken
Many investors worry that the impact of the epidemic on foreign trade will impact the exchange rate of RMB. In particular, who recently announced that the new coronavirus epidemic will be listed as a public health emergency of international concern, which will affect import and export and cross-border tourism in a certain period of time.
Lets see the import and export first. For a long time, China has maintained a continuous net inflow of capital under the item of goods trade, that is, the export volume is higher than the import volume. A number of experts interviewed by the first finance and Economics Department said that the epidemic should have a certain impact on Chinas goods trade in the short term, but such impact is often equal to import and export. If there are fewer imports, there will be fewer exports. As long as we keep the same pace and keep the surplus, there will not be too much pressure on the RMB exchange rate.
The other is service trade represented by tourism. In 2003, there were only 20 million outbound tourists in China, but with the improvement of peoples living standards, by 2019, there were 120 million outbound tourists in the first three quarters alone. Outbound tourism needs to purchase foreign exchange, which has become an important branch of net outflow under service trade in Chinas balance of payments.
Affected by the epidemic, in the short term, it can be predicted that the number of people going abroad for tourism will drop significantly, and naturally there will not be so many RMB converted into foreign currency, which is a plus for the appreciation of RMB exchange rate.
On the other hand, in terms of capital, continuous deepening of reform and opening-up are the foundation for the long-term attraction of Chinas market.
There is also a concern that the impact of the epidemic on the macro-economy will put pressure on the RMB exchange rate. Many economists have predicted that the GDP growth rate in the first quarter will decline at least one point, and the downward pressure on the annual growth rate will also increase. Is the foundation of RMB exchange rate stability still in place?
In this regard, Han Huishi believes that the composition of GDP is relatively complex, most of which have no direct relationship with exchange rate. The fluctuation of exchange rate needs to be supported by the actual capital transaction, while the demand of real economy is not necessarily behind the capital transaction, which is often just the transfer of capital between two bank accounts.
In the past ten years of working experience, I havent heard any trader tell me that GDP growth rate is the main reason for him to place an order. Han Huishi told reporters.
Even in the SARS period in 2003, the value of RMB remained stable, while the expectation of appreciation was still accumulating. After the U.S. subprime crisis in 2008, the economy once fell into a depression, but the dollar did not depreciate at the same time. Because the exchange rate reflects the medium and long-term expectations of the market for the economy, the impact of short-term events such as the epidemic on the macro-economy is only temporary.
On February 1, the peoples Bank of China and other five ministries and commissions jointly issued a document to launch a series of support policies from the financial, monetary, financial services and other aspects in the face of regions, industries, enterprises, personnel, etc. greatly impacted by the epidemic. Beijing, Shanghai, Zhejiang and other places have also introduced response plans suitable for each region.
On February 3, Christina Georgieva, President of the International Monetary Fund, expressed support for the measures taken by the Chinese government in recent period in response to the epidemic, including the financial, monetary and financial fields. The IMF is confident that Chinas economy continues to show strong resilience.
At the same time, the world bank said the Chinese authorities had policy space to deal with the outbreak and had announced a sizeable liquidity injection. All of these will help ease the impact of the epidemic on Chinas economic growth.
Adhere to the marketization of exchange rate and keep the two-way fluctuation trend unchanged
At present, it seems that the regulatory authorities still maintain a calm attitude towards the fluctuation of exchange rate, without much action.
The central banks attitude towards the RMB exchange rate has always been to hope to play a decisive role in the formation of the RMB exchange rate. Xie Yaxuan thinks.
Chinas consistent exchange rate policy is to adhere to the market-oriented reform of exchange rate, and constantly improve the managed floating exchange rate system based on market supply and demand, adjusted by reference to a basket of currencies. In the past four years, the exchange rate system of RMB has defeated the expectation of devaluation and been tested by practice.
At the working conference of the central bank held at the beginning of the year, it was again proposed that the market should play a decisive role in the formation of exchange rate this year.
He predicted that the new pneumonia epidemic in the future would be a temporary impact on the RMB exchange rate. With the recovery of the epidemic, the abatement of the influence and the gradual decrease of the pressure, the exchange rate of RMB will return to the trend of two-way shock, and the basic factors determine whether the RMB will rise or fall in value in shock. In the view of Han Huishi, affected by the epidemic situation, the total scale of Chinas trade in goods and services may shrink significantly, but it may not have a huge impact on the total balance under trade, and the total balance may even increase, so it will not directly cause devaluation pressure on the RMB exchange rate. Xie Yaxuan said that investors should more adapt to and accept the fluctuation of the exchange rate market within the range of u00b1 2% in the day. The outbreak is only a short-term shock, and there is no need to panic based on this short-term factor. Source: First Financial Editor: Guo Chenqi, nbj9931
He predicted that the new pneumonia epidemic in the future would be a temporary impact on the RMB exchange rate. With the recovery of the epidemic, the abatement of the influence and the gradual decrease of the pressure, the exchange rate of RMB will return to the trend of two-way shock, and the basic factors determine whether the RMB will rise or fall in value in shock.
In the view of Han Huishi, affected by the epidemic situation, the total scale of Chinas trade in goods and services may shrink significantly, but it may not have a huge impact on the total balance under trade, and the total balance may even increase, so it will not directly cause devaluation pressure on the RMB exchange rate.
Xie Yaxuan said that investors should more adapt to and accept the fluctuation of the exchange rate market within the range of u00b1 2% in the day. The outbreak is only a short-term shock, and there is no need to panic based on this short-term factor.