RMB Depreciation Is Brewing A Market Storm.

The renminbi looks like a safe haven in a world that has been greatly upturned by the appreciation of the dollar.

This year, the renminbi has fallen by less than 1% against the US dollar, which is only a fraction of the 14% decline in Brazil Real and the decline in the euro 12%.

However, since the renminbi has long been regarded as a "reverse market" (only to rise or fall), the renminbi has fallen to a 28 month low and has attracted considerable attention.

Some people expect more serious problems to happen.

Although China released a record trade surplus in January and February, the expectation that the yuan will further depreciate is still being accepted by more people.

In the past, this trade surplus usually brings upward pressure on the renminbi, because exporters exchange their US dollar proceeds into their own currencies.

The current decline in the RMB exchange rate is not a repeat of the unexpectedly short fall in the market last year.

Just a year ago, China's central bank (PBoC) had directed a weak renminbi market.

Analysts said the move was aimed at deterring speculators who had leveraged one-way bet on the appreciation of the renminbi.

After several months of operation, the Central Bank of China withdrew last summer, allowing the renminbi to rebound and return to its ten year old uplink.

However, since the end of October, the RMB exchange rate has fallen again, falling to 2.2% against the US dollar.

This market appears to be driven by the market rather than by the central bank.

That is to say, few people think that the direction of the renminbi will change immediately, and some analysts even expect this trend to accelerate.

Lai Zhiwen Kevin Lai, chief Asia economist at Daiwa Securities, believes that a storm is brewing in the market as the cost of borrowing and investing in China for many years has suddenly ended.

According to his estimate, Chinese enterprises have borrowed more than 2 trillion US dollars in the past few years, and a large number of them have been used for currency speculation.

Once the FED raises interest rates, such gambling is no longer profitable.

He said, "

Trading is the largest number of pactions in financial history.

A further 5% drop in the RMB exchange rate will be a big problem, which will trigger a massive sell-off and panic in the market.

A survey carried out by Soci t e G n e rale found that no one thought the renminbi would rise against the US dollar in the next 12 months.

42% of the respondents believe that the Central Bank of China will actively seek to depreciate the yen and the euro in order to deal with the depreciation of the yen and the euro.

China

Itself seems to agree with this view.

Data released last week showed that the fastest growth in China's foreign exchange deposits since January was recorded, indicating that companies foresee that the yuan will continue to fall, thus choosing to keep their US dollar income.

Overall foreign exchange deposits increased by US $82 billion 300 million in January. Compared to 2014, foreign exchange deposits increased by only US $134 billion in the whole year.

"

The rapid and rapid increase is unprecedented and significant, "Barclay, an analyst in Barclays, said in a report." we still think China will allow the renminbi to continue to weaken in a gradual way. "

Corporate bonds also play an important role.

With the fall of the renminbi, there is growing concern that offshore bonds and loans may have currency mismatches.

Chinese mainland companies have borrowed heavily in the US dollar debt market over the past few years, many of them short-term debt.

Morgan Stanley (Morgan Stanley) said that China's unpaid corporate debt is about 1/4 in dollar terms, and the income is only 8.5% in US dollars.

The bank said that the risk exposure of some industries to the appreciation of the US dollar is "huge", especially in China's real estate developers and raw material producers.

The imminent payment of US dollar interest is another reason for Chinese enterprises to retain or buy US dollars.

Investment outflows are also accelerating.

In the fourth quarter of last year, $91 billion of capital outflows from China was higher than the previous quarter's $56 billion 700 million.

With the prospect of the US Fed raising interest rates, more "hot money" is expected to escape from emerging markets and seek to allocate US dollar assets.

Despite strict foreign exchange control, China is not immune to it.

At the same time, China's economic picture beyond its exit is still uncertain.

China has lowered its official growth target to about 7% last week, and the two rate cut since last November also shows that policy makers are increasingly concerned about the threat of deflation.

Zhang Zhiwei, Deutsche Bank, warned that monetary policy failed to solve the problem of growth stagnation. This year, the risk of "mini hard landing" is increasing.