Emerging Market Turmoil, The Renminbi Will Say Goodbye To The Era Of "Appreciation".

< p > in the background of turbulence in Ukraine and other emerging markets, the depreciation of the RMB against the US dollar (6.1450, 0.0048, 0.08%) has led investors to question the future trend of < a href= "http://www.91se91.com/news/index_cj.asp" > /a > trend.

Over the past 20 years, the renminbi has continued to appreciate, rising from 8.72 in January 1994 against the US dollar's devaluation in January 14th to a record high of 6.04 in January 14th.

The RMB was almost unaffected during the subsequent critical periods, such as the Asian financial crisis in 1997, the SARS epidemic in 2003 and the Lehman crisis in 2008.

This year, the maximum depreciation rate of the RMB exchange rate reached 1.9% against the peak in just a few weeks, hitting a 7 month low of 6.1519 against the dollar last Friday.

So far this year, the yuan has fallen by about 1.6%, making it one of the worst performing emerging market currencies, with a drop of more than ADXY, and the Asian currency index has fallen by 1% so far this year.

Is this different for the renminbi? /p

< p > < strong > not < a href= > http://www.91se91.com/news/index_cj.asp > devaluation < /a > process < /strong > /p >

< p > we do not think RMB has begun to depreciate.

On the basis of net value, China will still benefit from its appreciation.

First, a stable and stable currency will help the Chinese government to realize its desire to raise the status of RMB as an international reserve currency, and the weakening of the renminbi will be unfavourable.

Second, as a commodity importing country, allowing RMB appreciation or maintaining currency stability will bring more benefits to China.

Third, China is acquiring more overseas assets, from mines and oil fields to know-how to consumer brands.

Stronger renminbi will enhance the economic viability of such acquisitions.

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What is the reason behind the abrupt callback of the "a href=" http://www.91se91.com/news/index_cj.asp "RMB" /a > exchange rate? < p >, considering that domestic liquidity is abundant, we think that the depreciation is guided by the government.

When the renminbi accelerated in February, the interbank interest rate hovered around 2.5%~3.5%, much lighter than it was at about 5% in January.

In other words, currency falls can not be triggered by financing pressures in the financial system.

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< p > < strong > but a fundamental change < /strong > < /p >

< p > we believe that the purpose of the devaluation of the renminbi is to signal the fundamental change in the trend of the currency, that is, to change from unilateral rise to bilateral fluctuations that allow it to fall.

This will promote the pformation of the renminbi from a managed exchange rate system to a more "market driven" floating exchange rate system, consistent with China's policy objectives of "making market forces" play a greater role in the economy.

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< p > secondly, the fluctuation of exchange rate will largely inhibit speculation because it will raise the cost of hedging.

The steady appreciation of the renminbi in the past has attracted a large number of foreign exchange inflows which are optimistic about "guaranteed appreciation".

According to my rough estimate, such "hot money" inflow reached US $63 billion in the fourth quarter of 2013, including pactions disguised as trade flows.

A sudden U-turn in the RMB exchange rate will lead to a loss in the relevant arbitrage positions and a warning to speculative investors.

Finally, the RMB exchange rate adjustment should ease some pressure on Chinese exporters and contribute to the government's GDP growth target of 7.5% this year.

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< p > we expect that as the US monetary policy normalize, the dollar will start to appreciate.

We expect that the US Federal Reserve will gradually reduce the size of the asset purchase plan before the end of the fourth quarter of 2014. After that, the market will gradually increase the rate of interest rate hike in the US, and the first interest rate increase may be in the middle of 2015.

In view of the fact that we expect that the renminbi will enter a new era of a more volatile and more market driven two-way volatility exchange rate mechanism, this means that the risk of RMB related investment will rise.

We continue to increase the US dollar and US and European equities.

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