Economic Outlook: The Orderly Depreciation Of The RMB And Favorable Stock Market

Now, there is a strange phenomenon in the stock market analysis: on the one hand, we hope that the central bank's monetary policy can be loosened. On the other hand, we talk about the depreciation of the renminbi, which is not conducive to the stock market. This is a very contradictory statement. In fact, under open conditions, domestic monetary easing and interest rate levels will inevitably lead to the depreciation of domestic currency. The reason is that lower interest rates will inevitably lead to the outflow of "arbitrage hot money", and the so-called "capital flight" will inevitably lead to depreciation of the local currency. Vice versa. If the appreciation of the local currency as a condition for the stock market to rise, that would mean that the stock market welcomed the increase in interest rates. Is that not a problem?

In order to curb economic overheating and to push up the value of the renminbi, the Central Bank of China has constantly raised the statutory rate of deposit payment and constantly raised interest rates, but the effect is a vicious circle. Because the stronger the RMB appreciation expectation is, the more hot money inflows, the hotter the real estate market, the higher the house price and the higher the share price. But by October 2007, the global economic fever has reached the extreme. The slender sub-prime mortgage crisis has emerged, and a large number of overseas hot money has begun to withdraw from China to protect its homeland. At the same time, the policy of tightening China's currency has reached the acme, especially for the tightening policy of real estate, so the sensitive stock market began to fall, and the B point appeared. But the Chinese government is not aware of the financial crisis. At that time, the statutory deposit rate and interest rate are still rising. The renminbi is still on the rise. Until the second half of 2008, the financial crisis has been very clear. Gross domestic product The collapse of the economy shows that China's economic overheating is false. In fact, the result of years of tightening money is that China's domestic demand is extremely weak. So since then, China's monetary policy has changed 180 times and the RMB exchange rate has stopped changing, but the stock market is expected to deteriorate completely, falling from 6124 to 1664 at once.

At that time, we thought that if the stock market pushed up the stock market because of the rise in commodity prices, it would be a "short and long sky" market, because the stock market was based on the real economy, and the production cost of the real economy was rising. Under the condition of weak demand, price inflation would further suppress demand and suppress China's economy, thus suppressing the stock market. So at that time, we thought that China could not afford to resist the import price rise. That is to say, we should not tighten our currency against inflation. Instead, we should follow the "passive follow-up" neutral monetary policy, maintain China's domestic economic needs on the one hand, and maintain the vitality of China's economy, so as to cope with the risks that may arise in the future. Otherwise, tightening the currency will further suppress domestic demand and lead to the "stall" of China's economy.

Regrettably, China announced its withdrawal in the second half of 2010. economic stimulus Plan. A major mistake has been made. The mistake is not to quit, but the wrong way to quit. Mistakes arise: first, the misjudgement of the international economic situation at that time and the demand for replenishing inventory in developed countries were mistaken for the economic crisis has passed and the economy began to recover; third, the imported inflation was treated as endogenous inflation, and the public opinion shouted that the housing prices were too high, the old Hundred Surnames had negative earnings, and the wages of migrant workers were too low. All the pressures were pointing to 4 trillion, pointing to the oversupply of money. Third, the 100 members of the United States Congress jointly signed the president to press the renminbi to appreciate. So we made a serious mistake: the economic stimulus plan could be withdrawn, but it should be withdrawn from the financial side. The combination of active fiscal policy and tight monetary policy is a real joke. The policy combination is actually that monetary policy not only refuses to cooperate with fiscal policy but also reversely exertion.

What's the result? RMB appreciation and stock market decline. After 2012, economic stall happened frequently, and every economic stall forced the government to rescue each other. Every time the economy was rescued, the demand for loans was large, and the result was that the economic leverage rate continued to rise. Especially in the process of frequent decline of stock market, equity financing is not more powerful. Leverage risk 。

Time comes to D. At this time, tight monetary policy and appreciation of the renminbi have weakened China's economy. In the second half of 2014, monetary policy loosened and began to shift. At the same time, under the pressure of weak economy and high debt rate, the yuan began to slow down appreciation and even depreciate. Of course, the loosening of monetary policy is also the cause of the depreciation of the renminbi. At that time, the stock market began to go up again under the impetus of loose money, and this rise became a typical "lever cow". Why? Because many years of financial reform have made China's financial market "monetization" and "de capitalization". There is no long-term capital to support the rising stock market, and some are just short-term financial products - money market products.

Now, how do we see the relationship between the RMB exchange rate and the stock market? Two aspects: first, we should welcome the "orderly and controllable" depreciation of the renminbi, because it will herald the strengthening of the international competitiveness of China's economy. More importantly, the "orderly and controllable" depreciation of the renminbi means that China's monetary policy is relatively loose. Second, we should hate the depreciation of the renminbi. Because once the RMB has depreciated aggressively, the central bank will fight against it, and the interest rate means will be used in the process of confrontation. From historical experience, in order to raise the cost of borrowing RMB by speculators, the central bank is bound to tighten the liquidity of the renminbi sharply, thereby seriously raising the market interest rate. Although this is temporary, it all depends on the duration of the attack. If the time is too long, the stock market will have a serious panic drop. This happened in Hongkong in 1998. Speculators attacked the exchange rate and forced the interest rate to rise. Because speculators profit from foreign exchange markets, if they are able to earn profits through stock index futures and hedge interest rate losses in the external money market, their attacks will continue to increase.