The Impact Of RMB Appreciation And Investment Strategy

In recent years, the central parity of RMB against the US dollar has continued to rise strongly.

The market expects the US Federal Reserve to further reduce interest rates, which will increase the pressure on the depreciation of the US dollar. Paulson's visit to China may result in an increase in the appreciation of the renminbi.

What is the relationship between the appreciation of the local currency and the capital market?

In the context of the recent appreciation of the renminbi, what kind of investment strategy should investors establish?

The appreciation of the renminbi is directly related to the exchange rate of RMB against foreign currencies, but it has no effect on investors in the foreign exchange market, because domestic banks only allow individuals to trade freely between foreign currencies.

The domestic bond market does not involve foreign currency, nor does it affect it.

The import of non-ferrous metals and agricultural products in the consumption market is larger in the futures market.

In theory, the appreciation of the renminbi will increase imports.

If the market exceeds supply, the price of the market will fall.

However, the current accelerated appreciation of the renminbi is due to the depreciation of the US dollar, and the US dollar quotations for spot and futures of international commodities have also risen sharply.

In the domestic market, when the value of local currency appreciates, the price of spot commodity and commodity futures, which are mainly imported, are rising simultaneously, and the corresponding futures market has also seen a long market, and the relevant commodities such as agricultural products, copper, aluminum and gold will benefit from the stock market.

However, for enterprises that rely heavily on imported crude oil such as petrochemicals and petroleum, the cost will increase.

However, a substantial appreciation of the renminbi will lead to an increase in export quotas, resulting in a decline in competitiveness, and even lead to the closure of export enterprises. The unemployment rate is rising, especially for textile and garment industries.

The appreciation of RMB has contributed to the flourishing of outbound travel, which has a positive impact on companies with overseas travel qualifications.

Airlines with a large number of foreign currency loans will also generate larger exchange earnings and also have positive effects.

However, A share companies that raise funds abroad may have some exchange losses.

However, in general, the disadvantages outweigh the advantages and the negative impact on the economy will be reflected in the stock market.

In the Shanghai and Shenzhen A share listed companies, export oriented textile, household appliances, electronic components and other industries, as well as port and pportation industry, will have negative effects on the net profit of the company due to the weakening of the export price advantage.

The export volume of China's automobile industry is not large, and the appreciation of RMB will cause the price of imported parts to decrease, which is conducive to reducing production costs and has a positive effect.

For foreign investment, it can be divided into investment type and investment type.

From the perspective of the financial crisis in Southeast Asia, the accelerated appreciation of the local currency will attract some speculative hot money inflows and hype for the purpose of obtaining short-term returns.

However, the degree of opening up of China's capital market is relatively low, especially in the stock market, which is the QFII system, that is, limited opening.

Of course, although there are some hot money flowing into the mainland stock market, it is possible to bet on RMB appreciation, but the proportion is not large.

For investment funds, if the RMB appreciation is 10%, it will cause the subsequent inflow of foreign currency funds to depreciate by 10%, the export oriented enterprises' product prices will rise by 10%, while the net profit calculated in foreign currencies will also increase by 10%.

Generally speaking, the slight negative impact of RMB appreciation on investment funds is limited.

For export oriented enterprises in China, the export price of most products has risen slightly, which has little impact on market competitiveness and will not significantly affect exports.

However, if the appreciation rate is large, it will show negative effects and reduce the enthusiasm of foreign investment.

On the stock market, if the appreciation rate is small, it will lead to more foreign speculative capital inflow.

The appreciation rate is moderate or large, which usually leads to the departure of speculative capital.

Due to the high growth of China's economy and the increase of inflow of foreign capital, the pressure of RMB appreciation has increased. In the past two or three years, the appreciation of the exchange rate has been an inevitable trend.

But in the medium to long term, the excessive economic growth will inevitably lead to the adjustment period, and the outflow of foreign capital will inevitably lead to the depreciation of the RMB.

Of course, the key lies in whether China's macroeconomic regulation and control, industrial restructuring and investment system reform can be carried out smoothly.

In addition, because China's economic growth is highly dependent on foreign investment and imports and exports, it is advantageous to maintain a stable exchange rate policy.

It is expected that the renminbi will continue to appreciate in the future. Is it holding assets in Renminbi or in Renminbi?

The premise of cash is that the appreciation of RMB against foreign currencies is greater than the decline in the purchasing power of RMB due to inflation.

The premise of asset holdings is that the appreciation of the renminbi is less than that of inflation as a result of asset price inflation such as stock or commodity futures.

In addition, this problem needs dynamic analysis. When to hold cash and when to hold stocks is the key. Investment timing is more important, which needs to consider the price trend of assets themselves.

If assets are not involved in foreign currency pactions, they will not be affected. Otherwise, the price of foreign currency denominated assets will rise in theory after appreciation.

Domestic residents hold RMB in cash, and if they do not consume abroad, they will not enjoy the benefits of appreciation.

The same is true if domestic enterprises do not invest overseas.

In addition, the profits of overseas enterprises who have invested overseas will also shrink when calculating profits from abroad.

As for the investment strategy under the expectation of RMB appreciation, I suggest that we should substantially reduce the amount of foreign currency cash holdings, pfer renminbi, or invest foreign currency in the B-share market with dividend sharing practices.

B shares are stocks that are denominated in Renminbi and are traded in foreign currencies. They do not have to be withheld as A shares when sending dividends and sending cash. Moreover, the actual price of B shares of the same listed company is much lower than that of A shares, which is undervalued.