Why China'S A Shares Will Weaken If The Renminbi Is Weakening?

The renminbi has become the most vulnerable currency in Asia, while China's A share market has become the most recent stock market in the Asia Pacific region.

This seems to be a great departure from last August and January this year, when the renminbi became a weak currency, triggering market panic in selling stocks and commodities.

As for the relationship between the RMB exchange rate and China's A share market, the macro view of investment research is as follows: first, establishing a close feedback relationship between the RMB exchange rate and the Chinese stock market is a "new thing" since the second half of 2015.

Two, there is no simple causal relationship between exchange rate and stock market. For example, it is not the derogation of the exchange rate, or the decline of the stock market, or the depreciation of the exchange rate.

Three, the Chinese stock market needs a "desensitization" process for the normal fluctuation of the RMB exchange rate. Although the recent market performance has confirmed this, the process will be completed for a long time.

Hu Weijun Hu, an economist at Macquarie, said that the market may be enveloped by the negative emotions brought about by Britain's "off Europe" and the exchange rate performance of the renminbi is also running thin ice. "(Larry)

However, perhaps investors believe that in fact, the weak renminbi and limited capital outflow pressure are not so bad for China.

So last week, the A stock index rose 1.9%, while the US dollar closed at 6.68, the highest since 2011.

Meanwhile, the domestic commodity market rebounded strongly, and steel and iron ore prices rose by 10% over last week.

In the face of this trend, Huitong financial analysts have answered their subordinates' questions to explain why the trend of A shares that have been highly synchronized since last year and the RMB exchange rate will deviate from this doubt in the near future.

Britain's departure from the EU shows that the EU has a centrifugal tendency, and its impact on the world economy will do more harm than good.

The euro will lead to a downturn in the UK and EU economies, and bear the pound and the euro, indirectly pushing the US dollar up.

Because of the relevance of currency, the RMB has weakened.

The industry said that the UK's "off Europe" major events, the RMB in the short term is more obvious fluctuations in the normal response, but in the long run, the renminbi

Will continue to fluctuate in normal range.

Market participants pointed out that in the short run, risk aversion may continue to push the appreciation of the yen and the US dollar, and there will be a short-term devaluation pressure on the RMB exchange rate. However, the monetary policy of the major economies is more or less the same. During the year, the possibility of raising interest rates by the Federal Reserve is doubtful, and the risk of RMB depreciation is still controllable.

Deputy director general of China International Economic Exchange Center

Although Britain's "off Europe" is a big blow to the pound, the pound will soon pick up.

The recent depreciation of the pound will not cause the renminbi.

On the contrary, the renminbi will be more popular.

It is estimated that RMB will become the second largest currency in the world in 3 to 5 years.

Xie Yaxuan, an analyst with China Merchants Securities, believes that in the short term, Britain will benefit from hedging assets, damage to risky assets, depreciation of the RMB exchange rate and rising pressure on China's international capital outflow.

For the peripheral market crash, A shares can rise unexpectedly. Zhu Bin, a Southwest Securities analyst, said, first of all, "off Europe", because of its inherent paradox, has a neutral impact on the world economy. Secondly, US dollar assets are at a high level, RMB assets are at a low level, and international capital demand for RMB assets will increase. Finally, the depreciation of the renminbi's opportunity to use "off Europe" will help reduce China's economic risks.

Generally speaking, exchange rate is affected by two aspects: import and export account and capital account.

In terms of import accounts, the surplus of China's imports and exports has continued to expand in recent years.

In terms of capital account, the one-year fixed deposit rate of Bank of China is 1.5%, while that of the United States is 0.5%.

From the above two factors, after the depreciation of RMB, domestic funds will not necessarily escape, and stock market stock will not necessarily be reduced.

From the point of view of market linkage, A shares are not fully open to overseas markets, and are less affected by external events than those of other countries and peripheral markets.

From the policy point of view, a series of loose monetary policies last year were effectively reflected in the near future, and macroeconomic data also showed signs of stabilizing and improving.

In February 29th of this year, the central bank downgraded the reserve requirement rate, and the macro monetary policy in the future was expected to exist, and the A shares went high.

Members of the central bank's monetary policy committee said in Davos that the US dollar rose after the British withdrawal from Europe and that the renminbi was affected, and that a certain degree of decline was normal.

But China has a large amount of foreign exchange reserves. In the short term, if the RMB exchange rate is under pressure, foreign exchange reserves can be properly used to balance the market.

In view of the rise of A shares, Peng Lingzhi, the manager of Cathay Pacific Fund, believes that Britain has a bigger impact on the overseas market than that of the European Union. A shares have their own logic and are still in a rally, so the market's reaction to Britain's "off Europe" is not so great.

But in the long run, A shares underestimated the impact of Britain's "off Europe" incident.

Peng Lingzhi regarded Britain's "off Europe" as the market's "black swan": "we still care more about the British off Europe, we feel that the A-share market has risen in the short term" A ".

But in the long run, it may be underestimated the impact of the incident, because the United Kingdom off Europe on the global economic, political, trade and financial structure, in the long run will have an impact.

In addition, Peng Lingzhi analysts believe that A shares may still have room for adjustment, but the adjustment time is longer than we think.

We believe that at present, there are investment opportunities in industries such as new energy, semiconductor, liquor and so on, so that they can get out of the independent market.