How Should The Stock Market See The Trend Of RMB Devaluation?

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? Now, there is a strange phenomenon in the stock market analysis: on the one hand, we hope that the central bank's monetary policy will be more relaxed, and on the other hand, we will talk about the depreciation of the people's currency, 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 this not a problem? So we must learn to correctly understand the relationship between exchange rate and price earnings ratio, which has no simple causal relationship.

Let's take a look at the historical situation.

We roughly divide it into four stages: first, the A point.

After July 21, 2005, the yuan began to appreciate, and the stock market began to rise.

Why? Because the motive force of China's economic growth stems from two aspects: first, under the premise of serious overdraft consumption in the United States and the developed countries, China, as a processing country of general consumer goods, has overheated external demand, and exports and investment have been rising rapidly; secondly, the sustainability and predictability of RMB appreciation is very strong, so a large number of foreign investment has entered China's arbitrage, a large part of which has rushed into the Chinese real estate market, and the Chinese people do have great demand for real estate, which has led to the first big upsurge in real estate development.

This time the stock market rise is entirely based on the overheated Chinese economy, and the appreciation of the renminbi is conducive to the rise in real estate prices, so the stock market is actually caused by the boom in real estate stocks and related industries.

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 was very clear. When the demand for foreign capital was zero, the GDP plummeted. This 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.

With the shift of monetary policy to "moderate easing" and the appreciation of the renminbi, the stock market is expected to change.

Especially after the start of the massive QE of the Federal Reserve, international commodity prices began to pick up, and the stock market was more speculation.

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 increased. Under the condition of weak demand, price inflation would further suppress demand, suppress China's economy and suppress 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, in the second half of 2010,

Announced the withdrawal from the 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 is the result? RMB appreciation and stock market decline after 2012.

The phenomenon is frequent, and every economic stall has forced the government to rescue each other. Every time the economy is urgent, it needs a lot of supporting loans, and the result is the rising economic leverage.

Especially in the process of frequent decline of the stock market,

No more force, greater 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.

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.