Zhu Bin, managing director and chief economist of Nanhua Futuresi, delivers his report of Prediction of global economic situation and analysis of RMB exchange rate.
Zhu Bin, managing director and chief economist of Nanhua Futures, shared with us the report "Prediction of global economic situation and analysis of RMB exchange rate". The report is mainly analyzed from three aspects: 1. RMB exchange rate trend and influencing factors; 2. RMB trend prediction; 3. China's economic status quo and judgment.
1. RMB exchange rate trend and influencing factors
Mr. Zhu firstly described the trend of the RMB exchange rate showing fluctuations within certain range after the 815 exchange rate reform, and then analyzed the trend of RMB from a long-term perspective starting from the purchasing power parity of RMB exchange rate. He also explained the factors that affect the change of the RMB exchange rate. It was mentioned in the report that the status of the US dollar as the global reserve currency determines that the US dollar is the core driving force of the RMB, while the euro and the yen are the core variable factors of the US dollar index.
From the historical trend, when the euro and the yen hedge against each other, the US dollar index fluctuates little. When the euro and the yen resonate, the US dollar index fluctuates violently. At present, the euro and the yen resonate again. In fact, there are three main factors that affect the movements of the euro and the yen: interest rate margin, economic difference, and inflation difference. From the perspective of the net position of the euro fund, the euro is not seriously oversold. The net fund position of the yen shows that the period the worst deterioration may be over. Historically, interest rate difference has been the biggest driver of the yen since 2001. The current economic and inflation differences do not support further yen depreciation, while the euro and yen the depreciation is closely related with the central bank's behavior. At present, the European Central Bank and the Bank of Japan are injecting much more liquidities versus the Fed. Then Mr. Zhu analyzed the secondary explanatory variable of the RMB, the interest rate margin, pointing out that the interest rate margin of 1.5% is the most suitable level.
2. RMB trend prediction
The huge trade surplus is the basis for the relatively strong RMB. Mr. Zhu analyzed that the devaluation of the RMB is coming to an end from the perspective of the economic cycle between China and the United States. From the perspective of the global economic cycle from Q2 2021 to Q2 2022, the global economic cycle remains dislocated. China's epidemic prevention and control tends to be scientific, and the market confidence has gradually recovered. From the perspective of China's terms of trade, the renminbi is very resilient, and it is expected to appreciate in the long run. Mr. Zhu also analyzed the revelation from the copper-gold ratio, an alternative indicator for predicting the renminbi.
3. China's economic status quo and judgment
Mr. Zhu gave an overview of China's economy from the perspectives of export, consumption and investment. At present, China's economic growth is suffering setbacks, prices are rising, consumption is declining, and investment is stalling, but exports are strong. He pointed out that the core focus affecting economic growth is investment, real estate investment stalling of which is the core contradiction. In order to stabilize the property market, China has issued a series of policies to promote the healthy development of real estate under the premise of strictly controlling housing without speculation. However, a noteworthy question is whether the loose monetary environment can stabilize real estate sales. The other is infrastructure that is a common strategy for stimulating economic growth, but what needs to be considered is whether the infrastructure investment with great expectations can support the economy.
Then Mr. Zhu analyzed the current consumption status. Consumption is the core of the internal circulation, which has been repeatedly interrupted by the epidemic, and the market confidence has been frustrated. The stimulation of investment and consumption relies on our greatest support: policy force, ample liquidity, and improved credit structure. The current market interest rate is significantly lower than the policy interest rate, which is similar to 2020. Mr. Zhu also analyzed the cycle of China's economic cycle from the financial point of view: currency cycle, credit cycle, economic cycle, and measured the three cycles with a concise method.
