There is no basis for the long-term bear market of the US dollar. A-share investors should be well defended

category:Finance
 There is no basis for the long-term bear market of the US dollar. A-share investors should be well defended


In his view, the fluctuation of the dollar index since the beginning of the year is more the function of risk seeking and hedging mode, and the view that the dollar has fallen for a long time has not been supported by enough convincing reasons.

On the long-term decline of the US dollar

There is no reason to support it

Securities Times reporter: what is the leading force behind the 4-month decline in the US dollar index?

Qu Hongbin: since the beginning of the year to the recent changes in the US dollar, it is more the risk seeking and hedging model that is playing a role, rather than the bull or bear market of the US dollar itself.

The S & P 500 index, a key barometer of global risk appetite, fell by about 1000 points from the beginning of the year to an intrayear low on March 23, during the first phase of the outbreak, namely, the new crown outbreak and market turbulence. Subsequently, the foreign exchange performance of G10 in major economies was in line with the traditional risk aversion model, in which the hedging currencies (such as Australian dollar, Norwegian krona, etc.) depreciated significantly against the US dollar, while the safe haven currencies such as Swiss franc and Japanese yen showed the smallest depreciation.

In the second stage, with the S & P 500 index gradually recovering all the lost ground, the foreign exchange performance of G10 countries is fully in line with the risk aversion mode - the risk taking currency rose sharply against the US dollar, while the outstanding performance of the safe haven currency faded.

In other words, behind the rise and fall of the S & P 500 index, the increase and decrease of G10 against the US dollar is almost symmetrical, almost all back to the starting point.

Securities Times reporter: what do you think of the increasingly popular view that the dollar enters a long-term bear market?

Qu Hongbin: our view is that the view that the US dollar has fallen for a long time has not been supported by enough convincing reasons.

But it needs to be made clear that this is not a forecast for a rise in the dollar. Based on fiscal space and the foreseeable future, we expect that the G10 exchange rate will be more differentiated, while the US dollar will remain strong, with no clear trend direction.

In a recent report released by the HSBC Foreign Exchange team, the basis for the market to believe that the US dollar entered a bear market was analyzed from three aspects

First of all, from a cyclical point of view, the markets bearish view of the US dollar is that the US dollar is no longer a high-yield currency among the G10 major currencies, and the US Federal Reserve is significantly increasing US dollar liquidity. As the US economic growth slows down, investors will reduce their holdings of US dollar assets and adjust the asset allocation structure.

However, we believe that the yield of US dollar is still in the middle level in G10, and the US dollar will not become the financing currency. Other central banks are expanding their balance sheets faster than the Fed, and there is no big gap in the growth of G10.

Secondly, from a structural point of view, in view of the markets view that the US double deficit is rapidly expanding to the highest level on record, we believe that the double deficit is not the first time in the United States, and the dollar has risen even under this pressure. Assuming that the economic growth of the US dollar is not significantly lagging behind and that the US dollar has not lost its global reserve currency status, investors are still willing to fund the deficit.

Finally, from a political point of view, the bearish view of the US dollar holds that the US dollars reserve currency status is being weakened, and we believe that, despite the decline in the reserve ratio held in US dollars, the US dollar is still crucial to the global financial system, and there is no clear alternative currency at present.

As the US election approaches, it is inevitable that the market will see it as the main factor driving the exchange rate performance in the coming months. However, how to interpret the economic recovery still in its infancy in the future may still be the core influencing factor of foreign exchange prospect.

Qu Hongbin: as long as the first phase agreement between China and the United States is still valid and the United States does not impose further tariffs, the US dollar / RMB ratio should not deviate significantly from the level of 7.00.

Chen Yulu, vice president of the peoples Bank of China, also stressed a few days ago that the exchange rate of US dollar against RMB will flow in a reasonable range and maintain at around 7.00.

During and after the Asian financial crisis in 1997 and the global financial crisis in 2008 (from the end of 1997 to the middle of 2005, and from the middle of 2008 to the middle of 2010), the RMB chose to peg to the US dollar, and the nominal effective exchange rate of RMB increased by about 20%. This time, the central bank is adopting a more flexible and enlightened foreign policy of crisis mode than in the past, and has not adopted the policy of hard pegging to the US dollar, Instead, they choose not to let the RMB exchange rate index be overestimated.

This means that policy makers are also trying to strike a balance between the stability and flexibility of the RMB. It is a reasonable and correct choice to focus on the level of around 7.00. This is also our judgment on the fair value level of the US dollar RMB exchange rate according to the US tariff system under the first stage agreement between China and the United States.

There will be two big factors in the future

Continuous impact on A-share performance

Securities Times reporter: under the situation of declining US dollar assets, do you have any suggestions on asset allocation in the next stage?

Qu Hongbin: with the gradual emergence of the impact of policy changes in various countries, the changes in government debt and the expansion of balance sheets will have an impact on the foreign exchange market.

The fiscal space is relatively large, the economic recovery rate may be faster than that of countries and regions with higher debt burden, and the performance of currencies such as the Australian dollar, New Zealand dollar, Norwegian Krona and Swedish Krona may also be better. At the same time, considering the high proportion of debt to GDP, the euro, the pound and the Canadian dollar may face downward risks.

In addition, from the perspective of asset allocation, we can consider increasing the holdings of hard currency bonds in emerging markets and investment grade or high-yield bonds; we can continue to consider increasing the holdings of gold when the global real yield will continue to be negative; we will remain neutral to global equity assets, among which we are still relatively optimistic about US equity assets.

On the other hand, the stimulus policies and loose liquidity adopted by governments have also formed a certain support for all kinds of assets except cash.

In addition, considering the fundamental risk and the slow economic recovery, the overall position of investors is still defensive, which may mean that the possibility of centralized selling of risk assets is low, and the risk of sharp price drop is also reduced.

Securities Times reporter: how to look at the impact of weak dollar on A-share market? How to judge the market in the second half of the year?

Qu Hongbin: our stock strategy team recently raised the forecast of A-share earnings growth this year and the target point of year-end index.

Looking forward to the second half of the year, loose liquidity and economic and corporate earnings recovery are expected to form a certain support for the A-share market. However, the current valuation level is higher than the average level before the epidemic and in the past five years, which may become an important factor limiting the upward space of a shares.

We judge that there will be two major factors influencing the performance of a shares in the future

The first factor comes from the implementation of the first phase of Sino US economic and trade negotiations and the evolution of political factors such as the US election.

So far, the outbreak of the epidemic has had a certain negative impact on Chinas demand for imports from the United States. The implementation of the first phase agreement is not only related to whether the second stage negotiation can continue, but also related to whether the results of the first stage negotiation can be retained. Any tension in Sino US relations may have an impact on the sentiment of A-share investors. The second major factor is the long-term impact of the outbreak and the risk of a second outbreak. The isolation measures taken to control the epidemic situation have brought about some changes in work and consumption habits. The government has also taken corresponding stimulus policies and increased the investment in the medical and health system. These changes have important reference significance for investors. At the same time, the outbreak of the epidemic has exposed the fragility of the global industrial chain division, and also made the major economies consider promoting the strategic and national security related industrial return, which may have a profound impact on the evolution of the global industrial chain in the long run. From this perspective, it and high-end manufacturing industries, as well as finance, health care and consumer industries, will benefit. Source: Securities Times editor in charge: Yang Bin_ NF4368

So far, the outbreak of the epidemic has had a certain negative impact on Chinas demand for imports from the United States. The implementation of the first phase agreement is not only related to whether the second stage negotiation can continue, but also related to whether the results of the first stage negotiation can be retained. Any tension in Sino US relations may have an impact on the sentiment of A-share investors.

The second major factor is the long-term impact of the outbreak and the risk of a second outbreak.

The isolation measures taken to control the epidemic situation have brought about some changes in work and consumption habits. The government has also taken corresponding stimulus policies and increased the investment in the medical and health system. These changes have important reference significance for investors.

At the same time, the outbreak of the epidemic has exposed the fragility of the global industrial chain division, and also made the major economies consider promoting the strategic and national security related industrial return, which may have a profound impact on the evolution of the global industrial chain in the long run. From this perspective, it and high-end manufacturing industries, as well as finance, health care and consumer industries, will benefit.