Understanding The Relationship Between RMB Devaluation And Stock Market

Since the beginning of the new year, the capital market has not welcomed the new year's gifts. It is the depreciation of the renminbi and the third stock market crash since the stock market in six months. In January 4th, the FOB price of the renminbi was the most derogatory 2.8%. In January, the Shanghai Composite Index fell 14.8% on the 4-11 trading day, and the gem fell 22.4%. The market worried about the depreciation of the RMB and dragged down the stock market. What is the relationship between the exchange rate and the stock market? We have reviewed the main reason since the financial crisis in 08 years.

The history of exchange rate and stock market shows that when the exchange rate depreciates, the stock market can go up and down, and there is no need to worry too much about the devaluation of RMB.

The renminbi is an active devaluation without any worry.

The devaluation of RMB in 14 years is an active depreciation.

The depreciation of the RMB was officially opened in early 14 and experienced several stages of depreciation. The depreciation rate has been 7.2% since the beginning of 14.

The background of the depreciation is the easing of monetary policy, especially in the 14 years of November. The rate of one-year fixed deposit has dropped from 3% to 1.5%, and monetary easing and other policies have been reducing the downward pressure on economic growth. Therefore, the interest rate of ten - year bonds has dropped from 4.6% to 2.8%.

Therefore, as a whole, the stock market is rising in the process of exchange rate depreciation.

811 after the depreciation of the exchange rate, the stock market plummeted, in essence, is concerned about global financial risks.

811 the central parity of RMB continued to decline for three days. A shares did not drop immediately, or even slightly increased.

The real decline of A shares began in August 18th, when global stock markets plummeted.

This is because the sudden devaluation of the RMB triggered the depreciation of the currencies of many emerging market countries, and the greater the magnitude, such as Kazakhstan 29.6%, Russia 12.6%, Malaysia 10.1% and so on, when the Federal Reserve Conference on interest rates was held in September, the continued depreciation of the RMB increased the expectation of the market to raise interest rates and the impact of raising interest rates. Global investors were worried about the recurrence of the financial crisis in Southeast Asia in 97 years.

The devaluation is smaller and more controllable.

Since the beginning of 16, in the context of the Fed's interest rate increase, the yuan has started a rapid devaluation. The US dollar has depreciated to 6.49 from the central parity of RMB to 6.56, and the US dollar to offshore RMB exchange rate to 6.76.

However, unlike the 811 exchange rate reform, the other emerging market countries have little depreciation in exchange rate. Only South Africa and Argentina are more than 5%. In 15, August, Kazakhstan, Russia and Malaysia depreciated more than 10%. In addition, there is still a period of time before the Fed's Conference on March 16, and the probability of triggering the global financial crisis is not high.

In addition, in terms of the RMB exchange rate, the people's Bank of China's 2016 working conference put forward "maintaining the basic stability of the RMB exchange rate at a reasonable and balanced level". Regulators have begun to intervene in the RMB exchange rate, and the RMB Offshore and offshore exchange rates have rebounded in the past two days.

When currency is loose and economic growth is stable, the depreciation of exchange rate can be called active depreciation. At this time, risk-free interest rate will drop, risk preference will be raised, and corporate profits will be expected to improve, bringing the stock market up.

When the economy is trapped and the fundamentals are deteriorating, the depreciation of the exchange rate can be called passive devaluation. At this time, corporate profits deteriorate and risk preference decreases, and the stock market falls.

Looking back at the experience of devaluation in the history of the United States, Japan, Korea and Russia, on the whole, when the active currency devaluation, the stock market rises, while the passive market depreciates, the stock market falls down.

When the market depreciates, the stock market rises.

In recent years, the devaluation of the US and Japan has all taken the initiative to depreciate and the stock market has risen.

The US subprime mortgage crisis has prompted the US Federal Reserve to open QE. Since December 08 to November 11, the nominal US dollar index has dropped 15%. In the US dollar 11 years, the total export volume of the United States increased by 15% over the 08 years, which has exceeded the level before the crisis. The devaluation has stabilized the US exports. During the period, the S & P has risen sharply. At the end of the year, Japan implemented "Andouble economics" and implemented large-scale quantitative easing. The yield of the ten year bonds in Japan dropped from 0.3% to 0.3%. From the end of 12 to the July of July, the yen depreciated more and more to the US dollar, and the depreciation accelerated the export growth rate. During the period, the Nikkei index increased by 130%. 130%.

When the market depreciated passively, the stock market went down.

07 years from November to March 09, affected by the US subprime mortgage crisis, South Korea's fundamentals significantly deteriorated. The GDP fell sharply from the same period last year, the monthly export volume declined sharply, the Korean won passive depreciation of 43%, and the South Korean composite index fell. In July, the price of the Brent crude dropped from $110 to $34 per barrel. The Russian economy highly depended on oil exports. The decline in oil prices caused a significant depreciation of the Russian rouble. The US dollar rose to 32 from the 14 in July in November, and the ten year treasury bond rate increased from 8.1% to 14%.

The exchange rate angle is more worthy of vigilance. It is the risk of partial crisis.

Several financial crises caused by emerging market countries in history, such as 97 years of Thailand, 98 years of Russia and 02 years of Argentina, will have an impact on global capital markets when their own crises break out.

In recent years, the global economy is relatively fragile, and the capital market has a strong response to the crisis. When the two Greek debt crisis broke out in 10 and 4-7 years and 7-10 years in 7-10 years, the global stock index fell synchronously. In the 10 years 4-7 months, the S & P 500 fell by 14%, the FTSE 100 index dropped to 16%, the Nikkei index dropped, and the composite index fell.

Measure the burden of external debt and guard against risks in Ukraine, Kazakhstan, Australia and Canada.

In the last three crises, -20140303 has analyzed 97 years' financial crisis in Thailand. This is a typical small country crisis. The conduction order of the crisis is export deterioration, growth decline, external debt rising, stock market decline, bond yields upside down, exchange rate depreciation, house price decline and financial crisis.

Foreign debt / foreign exchange reserve and foreign debt /GDP ratio are important indicators to measure the size of potential crises. In 97 years, the two values in Thailand were 427% and 73%. In 98 years, Russia was 2415% and 148% respectively, and 02 years Argentina was 1493%, 169%, respectively.

Detecting the external debt burden of the world's major emerging market countries, Ukraine, Kazakhstan, Australia, Canada and other countries are at greater risk.

Ukraine's external debt /GDP, external debt / foreign exchange reserves were as high as 125% and 1045% respectively, and the growth rate of GDP has declined sharply over the past 14 years. The domestic political environment is turbulent, the economy basically collapses, and the risk of spreading to other countries is being vigilant.

Kazakhstan's external debt /GDP, external debt / foreign exchange reserves were as high as 113% and 754% respectively, and exports grew negatively for more than half a year. Russia is Kazakhstan's largest trading partner. Sanctions against Russia in Europe and the United States have led to a sharp decline in trade between Kazakhstan and Russia. The trade deficit between Kazakhstan and Kazakhstan continued to decline compared with GDP.

The growth rate of GDP in Australia and Canada is relatively stable over the same period, but foreign debt / foreign exchange reserves and foreign debt /GDP have been relatively high. The huge external debt is like a sharp sword hanging on the forehead, and we need to be vigilant.

The oil industry is an important part of the economy of Kazakhstan and Canada. Metals and other resource industries are the main industries in Australia and Ukraine. In the future, we need to be vigilant that the Fed's interest rate increases will cause oil and metals prices to fall, which will lead to a heavier debt burden and risk of detonation.