Monetary Policy Helps China'S Stock Market Fall

The reason for the collapse of China's stock market is complex, but the central bank's monetary policy will undoubtedly play a strong role in helping to fall.

Although the central bank has invested trillions of dollars in liquidity, the capital market is not enough, because it has been returned after the expiration of the year.

Black Tuesday reappeared, today's stock index opened at a low level, closing down 6.42%, losing 2900 points and 2800 points two integer points, reported 2749.78 points, a 13 month low.

The total turnover of the two cities exceeded 523 billion yuan, and the industry sector fell across the board.

Reproduce thousand shares limit.

From the stock market, real estate banks, coal, non-ferrous metals and other capital intensive industries are more sensitive to the cost of capital market, so it is easier to adjust, but the coal industry and other resource industries have been strengthened by the support of state policies. This is not a normal market reaction, but a result of the policy led productivity. The future trend is still very difficult to win. In terms of banking stocks, the author quoted Yao shjie as saying, "many banks have lost the price that they had risen after January 2015, and even dropped a year ago.

For example, the price of Bank of China today is 28% lower than that of a year ago, and Minsheng Bank is 14% lower.

The main weight of the Shanghai Composite Index comes from traditional industries, and the chances of winning other indexes in the future are still slim, unless the national market team vigorously rescues the heavyweights.

Or the State encourages the entry of pensions to buy the undervalued sector.

For the whole market, the author maintains a trend free.

The judgement is more of a band pulse market, which is the author's 16 years' writing in the end of 15, but the Chinese stock market is a monkey city's basic judgement, but it is still too optimistic.

It is better to choose stocks in such a market.

Looking back at the trend of January as a whole, it is shocking that the opening year is unfavorable. The three trading days, four times, touch the melting mechanism and suspend trading. The Wind information data show that the Shanghai Composite Index has dropped 22.3% in January, which has also set a historical record for 26 years in the Chinese stock market. In January, the biggest fall in the history of the stock market has been 16.69%. It has entered a technical bear market. The decline in other indexes is also not less than the Shanghai Composite Index. The growth enterprise market has fallen 26.53%, the small and medium sized board has fallen 24.89%, and the Shenzhen index has fallen by 25.12%, all of which have entered the technical bear market.

The more than 10 trading day is just a short moment in the long run of China's stock market. In the face of heaven's fortune, we should always ask why. Although it is Zhuge's bad taste after all, it's better than not asking! Maybe it can play a role in restoring the surplus.

Today, the author does not look for the reason from the stock market system itself, but from the central bank to find the reason, because in the past period, I wrote two short articles, "fear of assets will be rewritten" and "Stock Exchange double kill". In fact, many analysts at the beginning of the new year blamed China's stock market crash on the exchange rate collapse and capital flight.

Although the RMB exchange rate of China is currently implementing a basket of currencies, it has always been fixed in the US dollar. In practice, it is mainly based on the US dollar exchange rate to judge whether the RMB depreciates. In December 4th, China released the PMI data which was not as good as expected. In December, official PMI recorded 49.7, lower than expected, and was under the boom for 5 consecutive months.

Led to a sharp decline in the RMB, the offshore renminbi against the U.S. dollar fell 0.62%, to 6.5338, the lowest level since April 2011.

Meanwhile, in the evening of January 4th, offshore renminbi against the US dollar also fell by 0.85% to 6.6291, a new low since the beginning of 2011.

In January 6th, offshore renminbi (CNH) was 6.7170 against the US dollar, the largest drop in the day to 6.7241, or about 770 points.

The offshore renminbi (CNY) fell below the 6.56 barrier against the US dollar, dropping to 6.5619 during the day and the largest decline to 466.

On the 16 day, the central parity of RMB against the US dollar was 6.5314, down 145 basis points from 6.5169 on the previous day (January 5th), the lowest level since April 2011, and has been down for seventh consecutive trading days.

At the Davos forum, hedge fund manager Soros openly claimed that the short selling of Asian currencies might include China's renminbi. In order to maintain the stability of the RMB exchange rate, the central bank made all efforts to raise the cost of short renminbi, resulting in a sharp rise in the RMB interest rate in Hong Kong.

The purpose is very clear to reduce the cost and quantity of cross-border movement of people.

The tightening of international speculative forces short of Renminbi sources has also tightened domestic liquidity and intensified the domestic liquidity crisis.

Since the beginning of the 15 years, China's deflationary worries have been there. Taking the December economic data as an example, the national consumer price index (CPI) and producer price index (PPI) data of 2015 December showed that CPI rose by 0.5%, an increase of 1.6% over the same period last year, and PPI fell by 0.6% compared with the same period last year, down 5.9% from the same period last year.

This is the forty-sixth consecutive month of decline.

Deflation aggravated the central bank's efforts to increase monetary easing and correct deflation, but it is impossible for the central bank to implement loose monetary policy.

As the RMB exchange rate continues to fall, the implementation of loose monetary policy will exacerbate the devaluation of the renminbi, which will result in more liquidity. Central bank official Ma Jun wrote that the decision to adjust the reserve ratio and the frequency should be based on the premise that short-term interest rates should be stabilized at a reasonable level.

Influence.

If the rate of reduction is too large or too frequent, it will lead to the excessive downward trend of short-term interest rates in the mainland, which may aggravate the capital outflow, which is supposed to be hedged by the effect of raising the monetary multiplier and expanding liquidity. Zhang Xiaohui, assistant to the central bank governor at the central bank mobility forum, said that at the present stage, the management liquidity must be highly concerned about the stability of the RMB exchange rate and the policy signals of lowering the accuracy are too strong.

The monetary policy of the Central Bank of China has fallen into a difficult three dollar paradox of Mundell. There are three economic goals of a country: 1. Independence of monetary policy; 2. Stability of exchange rate; 3. Full liquidity of capital.

The three countries can only choose three of them but not three. In order to maintain exchange rate stability, the independence of monetary policy will be lost.

From the recent operation of the central bank, it mainly injected short-term liquidity to ease the demand for funds in the special period of the Spring Festival through open operation rather than releasing the long term funds by releasing the liquidity.

This is not commensurate with the domestic economic situation and the stock market trend. Today, the premier pointed out that this year's international environment is more severe than last year, and it will bring various impacts on China's economy.

China's economy itself is also in the key period of pformation of development mode and industrial pformation and upgrading. We must adhere to the new concept to lead development and firmly seize the top priority of development.

Development needs a more relaxed monetary environment.

Therefore, the focus of the central bank's work is no longer to maintain the liquidity of the domestic market, but to maintain the stability of the RMB exchange rate. Under the three dollar paradox, the central bank's monetary policy can not be independent and unable to make a big difference. In the case of China's Deflation worries, it is impossible for the central bank's monetary policy to be independent and unable to make a big contribution. The rate of reduction is also greatly reduced. Liquidity may also become more and more intense, and the cost of capital will also increase. In January 20th, Shanghai's interbank offered rate (Shibor) short-term varieties soared, overnight interest rates rose by 2.40BP, and reported 1.9830%; the 7 day interest rate rose by 2.50BP, reporting 2.3410%.

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Market pledge repo weighted average interest rate also jumped to 2.1304%, an increase of nearly 14BP compared with the previous 1.9939%.

In the face of soaring interest rates, the central bank still has no implementation of the quasi reduction operation. It is still alleviated by injecting short-term liquidity. The short-term liquidity fund is quite different from that of the drop in price. One is the difference between the cost of capital and the other is the difference in the duration of funds, the difference in pparency is different, the expectation is different, and it is due to be returned at maturity. It is urgent to save the poor. According to the author's interpretation, the central bank will sacrifice the price of some domestic stock market and other assets to maintain the stability of the exchange rate.

In the case of PPI -5.9%, although the nominal interest rate is not high, only 4.6%, but the real interest rate is very high, up to 10.5%. Moreover, when the Fed enters the interest rate cycle, the central bank is facing the poor real economy, the falling stock market and the volatile RMB exchange rate.

The trend of the stock market is highly correlated with interest rates. The lower the market interest rate, the easier the stock market will rise and the higher the valuation level. Conversely, the higher the market interest rate, the easier the stock market will fall and the valuation level will also be depressed. At this time, it is not possible to calculate the stock market's normal valuations simply by the ten year bonds with no risk return rate, because a large number of hedge funds are gradually escaping from the risky assets and go to the ten year treasury bonds to avoid risks, which will lead to the trend that the bond market deviates from the stock market.

Valuations may gradually become cheaper and cheaper. The lower valuation is not a sufficient condition for the stock to bottom up. It is only a necessary condition, and the valuation may be lower.

Moreover, the trend of China's stock market depends not only on the financial environment, but also on the expansion of new shares.

It is possible to judge the bottom behavior by historical valuation level.