The Depreciation Of The Renminbi Is Essentially A Correction, Overestimating The Stock Market.

At present, the RMB exchange rate and housing price must be wrong. In the 2014-2015 year's margin tightening of the Federal Reserve, the domestic currency is excessive, and the excess of the money means the decline and depreciation of the purchasing power. The internal depreciation is the rising of the asset price of the stock market and the depreciation of the foreign currency means the exchange rate adjustment.

In the past 2014-2015 years, the yuan has depreciated internally but has not depreciated externally, and has accumulated a marked overvaluation pressure. This is the basic background of the continued depreciation of the RMB since the 811 reform.

Therefore, we can see that in early 2016, the US dollar index was callback, the RMB depreciated against the US dollar, and the US dollar index strengthened at the end of 2016.

The renminbi always chooses weak anchors between two anchors to release the revised overestimation pressure.

(1) the core point: since the national day, the US dollar has been developing at a high level and the RMB exchange rate is low. However, the RMB is basically stable against a basket of currencies and the RMB exchange rate is anchored.

The strengthening of the US dollar after October was mainly caused by economic recovery, re inflation, increased interest rate expectations, Trump's new fiscal expansion policy and Yellen's turning to hawk, and so on. Britain's referendum from Europe, Italy, the German bank crisis and China's real estate regulation provided external causes.

The continued depreciation of the renminbi is not based on the fundamentals of the economy, but on the overestimation of the accumulated over the past 2014-2015 years. The strength of the US dollar has provided an opportunity.

At the beginning of 2016, when the US dollar callback and the US dollar strengthened again at the end of 2016, the RMB chose a weaker anchor between the US dollar and a basket of currencies. This should prove the demand for RMB's continued release of over estimated pressure.

In addition to the strength of the US dollar, the recent derogatory effect may also be related to the early release of risks and pressures by the monetary authorities before the arrival of key nodes: in December, the Federal Reserve raised interest rates to close and new exchange rates came out in January next year.

The overcorrection of RMB correction helps to release overestimation risk and ease the pressure of the trade sector. However, the gradual depreciation strategy also brings pressure on capital outflow, and the inevitable choice is to strengthen capital control and maintain a neutral monetary policy.

Considering the overall controllability of capital outflow, we maintain the judgement of economic L type soft landing, light stagflation, monetary neutrality, commodity "cycle bull", stock market "performance bull", debt market adjustment, and real estate small cycle end.

(2) since the national day, the US dollar index has been developing at a high level and the RMB has been innovating low. However, the RMB has basically been stable against a basket of currencies and the RMB exchange rate has been anchored.

Influenced by the Fed's interest rate hike, Trump's new fiscal stimulus and global inflation expectations, the US dollar index rose from 95.34 in October 3rd to 5.98% in November 25th, compared with 1 in September, and 3.44% in the 1 to September. The US dollar against the central currency depreciated from 6.70 in October 10th to 3.26% in November 25th 6.92,44 days, which was more than 1 to September.

Moreover, from October 3rd to November 25th, other major currencies depreciated relative to the US dollar, and the depreciation rate was even greater than RMB: 1) the developed countries: the Japanese yen depreciated to 11.39% against the US dollar, while the 1 rose to 15.71% by September; the deutsche bank crisis, Britain's withdrawal from Europe and Italy referendum and other factors led to the depreciation of the euro 5.95%, while 1 to September appreciated 3.38%; the pound depreciated 2.97%, and 1 to September depreciated 13.52%.

2) emerging countries: the Thai baht depreciated 2.92% against the US dollar, 1 appreciated by 3.78% in September, 2.93% in India rupee, 1 in September and 0.74% in September.

(3) after October

Strengthening is mainly affected by economic recovery, re inflation, increased interest rate expectations, and Trump's new fiscal expansion.

In October, the CPI (6 months maximum increase), the unemployment rate (the average value of the jobless claims per week was the lowest since June 2000) and the new housing starts (9 years' new high) have improved. Since the national day, the probability of raising interest rates on the federal funds interest rate futures in December has been increasing.

Trump launched the economic policy of "capital construction + tax reduction + interest increase", which is a strong dollar combination.

At the same time, the risk of non British economies such as the euro referendum, Italy's referendum, the German bank crisis and China's real estate regulation has increased, highlighting the risk aversion of the US dollar.

(4) the continued depreciation of the renminbi is not based on the fundamentals of the economy, but on the revision of the earlier overestimate.

In the 1-3 quarter of 2016, China's economy experienced a revival of a small cycle. PMI, PPI and the margins of corporate profits improved. Therefore, it is difficult to explain the depreciation of the RMB from the economic fundamentals. The narrowing of trade surplus and capital outflow can only be explained partly, and they are mutually reinforcing and reinforcing each other.

We believe that the sharp depreciation of the current round of RMB has little to do with the recent economic fundamentals, nor is it a non competitive depreciation.

This can be traced back to the strong US dollar cycle in July May 2014. During this period, the world's major currencies depreciated by about 20% relative to the US dollar. The RMB exchange rate was kidnapped by RMB internationalization and SDR technology assessment, and the anchor dollar became the second strongest currency in the world, and the ~2015 overestimated the pressure.

(5) the recent rapid devaluation of the renminbi may be an early release of risks and pressures.

From 10-11 months to less than 2 months, the depreciation rate of the RMB against the US dollar has exceeded the depreciation rate in the past 1-9 months. In addition to the strong US dollar, it may also be related to the early release of risks and pressures before the monetary authorities arrive at the key nodes: in December, the Federal Reserve raised interest rates and the new exchange rate came out in January next year, and Trump's accession to the White House in January may push China to be a "currency manipulator" and regain the equilibrium exchange rate to win space for monetary policy.

What needs to be explained is that China has not recently manipulated the undervaluation of the exchange rate to gain an unfair trade advantage, but there is a significant overvaluation of the exchange rate which has put pressure on the trade sector. If the central bank does not adopt a gradual depreciation strategy, the depreciation rate may be even greater.

(6)

The correction overestimation can help to release overestimation risk and ease the pressure of the trade sector, but the gradual depreciation strategy also brings the pressure of capital outflow, and the inevitable choice is to strengthen capital control and maintain a neutral monetary policy.

The domestic financial market is not afraid of depreciation, but is worried that the expectation of depreciation will lead to the runaway of capital outflow.

Taking into account the adaptability adjustment of enterprises, domestic real estate regulation and control bubble, economic fundamentals L touch bottom, corporate earnings recovery and capital control upgrading, capital outflow is controllable at present.

Therefore, the domestic stock debt market has returned to its own logic and ignored the exchange rate in good faith.

We maintain the judgement of economic L type soft landing, light stagflation, monetary neutrality, commodity "cycle bull", stock market "performance bull", debt market adjustment, and real estate small cycle end.

(7) after the return of the RMB to the equilibrium exchange rate, the short-term trend in the near future will depend on the differences between China and the US in terms of economic inflation, monetary policy, trade surplus and so on. The long-term trend depends on the labor productivity, reform prospects and age structure of the two countries.

The essence of exchange rate is the parity between two currencies, and also the allocation of assets in large categories. Investors choose between the two currencies because of their differences in return on assets, and the difference in return on assets behind this currency is derived.

Also comes from the real economy, but the most fundamental is from the real economy.

In the short term, the current US economic recovery prospects are better than those of other major economies, which is the fundamental reason for the weakening of the US dollar and other major currencies.

In the long run, the prospect of RMB exchange rate depends on whether China can promote structural reform of supply side, increase labor productivity and improve economic growth prospects.

In the 1-10 month, the profits of Industrial Enterprises above designated size increased by 8.6% over the same period last year, and the growth rate was 0.2 percentage points faster than that in 1-9 months.

Among them, the profit in October increased by 9.8% over the same period last year, and the growth rate was 2.1 percentage points faster than that in September.

Comment:

(1) the core point: because of rising prices, falling financial costs and low base numbers, the efficiency of industrial enterprises has continued to improve, and coal, steel and nonferrous metals have improved significantly.

In terms of industries, upstream profit growth continues to pick up, while the middle reaches are squeezed and the downstream is more stable.

Starting from July this year, the current replenishment cycle has lasted for 4 months. It is expected that the cycle of replenishment will continue until the middle of next year, and the contribution to economic growth will be negative.

Cattle and stock market performance in the commodity cycle were mainly benefited from the full capacity and demand recovery, and the current supply recovery was very slow.

(2) as a result of rising prices, declining financial costs and low base period, the efficiency of industrial enterprises continued to improve..10 months, the profits of Industrial Enterprises above designated size increased by 9.8% over the same period last year, and the growth rate was 2.1 percentage points faster than in September.

The main reason for the improvement of profits is that PPI rose 1.2% over the same period last month, 1.1 percentage points faster than the previous value, thereby driving the main business income to grow 5.4% compared to the same period last year, which has hit a new high since 2015.

The two is the fall in financial cost.

In October, the financial cost of enterprises decreased by 4.5% compared with the same period last year, continuing the downward trend since the beginning of the year.

The three is the low base effect. Compared with the same period last year, the profits of Industrial Enterprises above Designated Size dropped by 2% over the same period last year, the lowest value for -10 months in April 2015.

(3) according to the type of registration, the profit growth rate of state-owned enterprises continued to rise, mainly due to the increase in coal and steel prices after the administrative capacity went to.1-10 months. The profit growth of state holding industrial enterprises was 4.8% year-on-year, representing a 2.2 percentage point increase over the 1-9 months, which has continued the trend of growth since July.

The continuous improvement of the profit growth rate of state-owned enterprises lies mainly in the rising prices of coal and steel.

In 1-10 months, the profit growth rate of private industrial enterprises was 6.6% year-on-year, which has continued to decline since June.

(4) from the perspective of industries, the upstream profit growth rate has obviously rebounded, the middle stream profit has been squeezed, and the downstream has been more stable. In the.1-10 months, the total profit in the coal mining and washing industry increased by 1.1 times, the former value was 65.1%, the ferrous metal smelting and rolling processing industry increased 3.1 times compared with the previous year, and the former value was 2.7 times.

In the middle reaches, the special equipment manufacturing industry increased by 1.4% compared with the previous year, the former value was 5.8%; the electrical machinery and equipment manufacturing industry increased by 12.2% compared with the previous year, the former value was 13.1%, and the electricity and thermal production and supply industry dropped 8.1%, the former value was -5.7%.

In the lower reaches, the auto manufacturing industry grew by 13.9% compared with the previous year, the former value was 13%, the pharmaceutical manufacturing industry grew 15.5%, the former value was 13.9%, and the textile industry grew 4.3% compared with the previous year, the former value was 4.2%.

(5) the replenishment of stocks is expected to continue until the end of next year at the end of.10, and the finished product inventory of Industrial Enterprises above Designated Size will decrease by 0.3% compared with the same period last year, up 0.5 percentage points from the previous month.

Since July this year, the replenishment cycle has lasted for 4 months.

It is expected that this cycle will continue until mid 2017, and its contribution to economic growth will be negative.

As the RMB depreciated against the US dollar and other major currencies also depreciated, the yuan was stable against a basket of currencies. The RMB closed against a basket of currencies at the lowest price of 93.78, the highest 94.64, with a 0.92% fluctuation.

The exchange rate of RMB has changed from a previous peg to a basket of currencies.

This will reduce the impact of the US dollar's rise and fall on the exchange rate, enhance the independence of the RMB, and reflect the changes in the RMB's internal value more rationally, thereby deepening the direction of exchange rate market reform and reducing government intervention.