The days of holding yuan to lie and make money are gone forever.
Jeremy Armitage, senior vice president of State Street Global, told his clients. In the agency that manages $2.3 trillion in assets, Armitage is the head of the Asian division of the marketing, trading and research department. He said in an interview with the First Financial Daily yesterday: "We tell our customers, Don't think that the RMB is there to make a 2% to 3% risk-free deal."
When the market is looking forward to the break of the RMB against the US dollar, the RMB exchange rate has depreciated in the past week. The spot exchange rate has fallen by more than 800 basis points, and the appreciation rate in the past six months has been wiped out.
A spokesman for the State Administration of Foreign Exchange said yesterday that the continuous decline in the RMB exchange rate is the result of the market entity's adjustment of the previous RMB trading strategy, which is a normal fluctuation and does not need to be over-interpreted. However, the market is still convinced that they saw the "Yang Ma" figure in the process of RMB depreciation in this round - the nickname recently obtained by the People's Bank of China [microblogging].
“This is a game between the central bank [microblogging] and the arbitrageurs.†A macro-strategy hedge fund trader told the “First Financial Daily†that “the central bank has done a good job this time. If it continues to weaken, it is estimated that it will cause a lot of Selling."
The market generally believes that the central bank “knocked†the arbitrage hot money and guided the RMB depreciation. A number of investment banks and institutional sources have revealed to the reporter that the depreciation rate is large, and that investors are using this as an excuse to make profits, and there are also many losers. In Hong Kong, the most active offshore renminbi market, a large number of renminbi derivatives are on the front line.
Fall in love with the yuan
Armitage analyzed that the gradual appreciation of the renminbi and the high interest rates in the onshore market have already made the renminbi a carry trade currency. “The history of the yen as a carry trade currency shows that this is very risky for financial markets.â€
Carry trade is a high-yield asset that investors invest in low-yielding currencies and invest in high-yielding currencies to achieve higher return on investment. Before the Asian financial crisis in 1997, the yen spread trade prevailed and became a major driver of the financial crisis. The Japanese folk speculation market has been active in the "Taibian wife group".
Until the current round of depreciation, there is almost no risk of betting on the unilateral appreciation of the RMB. In addition to a short-term depreciation in 2008 and 2012, the RMB has risen 33% since 2005. Among them, the RMB appreciated by nearly 3% against the US dollar in 2013. In addition, the one-year deposit rate in the RMB is at least 3.25%, and the double income of the difference and spread is 6.25%.
The seemingly risk-free income has made arbitrage funds rush, and these data, which far exceed market expectations, indicate that capital has accelerated a large inflow – foreign direct investment (FDI) in January was 10.763 billion US dollars, up 16.11% year-on-year; bank valet in January Net settlements doubled to US$76.3 billion, a record high. This has increased China’s foreign exchange reserves by $42.7 billion last year, which has exceeded $3.8 trillion.
However, in just seven days, the onshore and offshore RMB market conditions have been rapidly reversed. Over the past week, the spot exchange rate of the RMB has fallen by more than 800 basis points, and the increase in the RMB exchange rate in the past six months has been written off. The spot exchange rate of the RMB against the US dollar fell by more than 1.3%, and the Hong Kong dollar depreciated against the US dollar on the spot exchange rate by more than 1.4%.
In the central bank price trend of the central bank, which reflects the "regulation" color, as of yesterday's 14 trading days in February, the cumulative decline was more than 1%, and the last 8 trading days fell by 1%.
Breaking one-way appreciation expectations
"Policy makers hope to break the market's view on the unilateral appreciation of the renminbi." Armitage told the "First Financial Daily" reporter. The central bank’s guidance of this devaluation seems to have become a market consensus. International and domestic investment banks have said in unison that part of the reason for the recent renminbi’s stagnation is that the central bank is hitting arbitrage hot money. At the same time, many researchers believe that this is a stress test before expanding the daily fluctuation range of the RMB spot exchange rate.
Among them, Yao Xing, a Chinese economist at Societe Generale, said in the "China's central bank's RMB experiment" report that the central bank does not want to see excessive appreciation of the renminbi driven by short-term speculative capital inflows. The renminbi has the characteristics of the carry trade currency, that is, the higher onshore interest rate and the gradual steady appreciation trend. She believes that the central bank can change and seems to be changing the second characteristic, pushing up the volatility of the renminbi by reversing the appreciation trend.
“The magnitude is very large.†Wang Ju, senior Asian foreign exchange strategist at HSBC, told the “First Financial Daily†that “CNH (offshore RMB exchange rate) has returned to the middle price level and reached the goal of the central bank to squeeze speculative funds.†She said that there is a lot of money to make more yuan in January each year. The current situation is that hedge funds that entered before January have already made a profit, and some investors have stopped buying losses.
Since there is no 1% mid-day fluctuation limit, the free Hong Kong offshore renminbi market can be said to be the vane of the appreciation of the renminbi. A large number of funds including hedge funds, long-term institutional investors, small and medium-sized enterprises, and high-net-worth clients are gathered here, both long and short-selling investors.
A fund manager of a RMB fund told this reporter that it is difficult to make money after shorting the renminbi, and that the renminbi has become a “crowded transactionâ€.è¶ This mid-price is lower, the market took advantage of this opportunity and the HSBC PMI (China Manufacturing Managers Index) fell to more than half a year of low-end excuses to profit, "the first round is a hedge fund." He said.
Hu Weijun, chief economist of Macquarie Capital Securities Greater China, told this reporter that as China's capital yields fall and risks rise, there will be more fixed income and monetary funds have the incentive to short the yuan.
Offshore derivative risk
The sharp decline in the renminbi has surprised many investors, and the risk of the offshore renminbi derivatives market is also at the tip of the iceberg.
According to a report by Deutsche Bank, the size of structured option products in the offshore renminbi market in Hong Kong is huge. The bank estimates that the turnover of RMB derivatives contracts last year was close to 250 billion US dollars. The turnover so far this year has reached 80 billion US dollars to 100 billion US dollars, which is nearly 40% of last year.
Feng Xiaozhong, general manager of Hang Seng Bank and head of treasury business and investment services, told the "First Financial Daily" reporter yesterday that every financial institution in Hong Kong has various exchange rate products packaged into options, and some hedges have investments with different leverage ratios. There is basically no transparency in the market.
The more common exchange rate derivatives include the RMB forwardable (DF) and non-deliverable forward (NDF), and the “target redemption forward†that emerged from last year has quickly become popular. The target redeemable forward contract is generally designed as a 12-month or 24-month contract, setting a “performance price†lower than the spot price and a “lower-end protection price†farther from the spot price. The monthly and offshore fixing price is once. Simply put, this product is a leveraged bet that pays off every month when the renminbi appreciates, but when the renminbi depreciates to a certain level, the losses accumulate quickly.
Wang Ju told this reporter that the price of such contracts last year was generally set at 6.3~6.4 (US$ to RMB), but this year investors have strong expectations for RMB appreciation, and many contracts are set at prices close to the current market level. This means that many of the above contract buyers have already stopped to leave, or choose to extend the contract price period.
Feng Xiaozhong said that the buyers of such contract products have both hedge funds and SME customers, and many contracts set at 6.1 have triggered automatic stop loss.
The hedge fund traders mentioned above said that if the renminbi continues to depreciate, it will lead to more contracts triggering automatic stop-loss orders to increase sales, which will make the offshore renminbi market more volatile.
Regarding whether foreign trade enterprises will be accidentally injured, Wang Ju’s answer is no, “For foreign trade enterprises with actual hedging needs, they will not leave at this level, and the situation will not be particularly painful.â€
Wang Ju also analyzed that the renminbi was generally weak before the two sessions, but it will regain strength after the two sessions. This represents the mainstream view of the market. In the medium and long term, the trend of RMB appreciation has not changed. The central bank will adjust the middle price after the people's appreciation expectations are weakened.
The tricks of regulators and arbitrageurs have only just begun. Yesterday, both the onshore and offshore RMB markets were quiet. An onshore trader told the China Business News that the NDF, which has risen for five consecutive days, has also stabilized, but the next trend is still going to be Look at several trading days.
Jeremy Armitage, senior vice president of State Street Global, told his clients. In the agency that manages $2.3 trillion in assets, Armitage is the head of the Asian division of the marketing, trading and research department. He said in an interview with the First Financial Daily yesterday: "We tell our customers, Don't think that the RMB is there to make a 2% to 3% risk-free deal."
When the market is looking forward to the break of the RMB against the US dollar, the RMB exchange rate has depreciated in the past week. The spot exchange rate has fallen by more than 800 basis points, and the appreciation rate in the past six months has been wiped out.
A spokesman for the State Administration of Foreign Exchange said yesterday that the continuous decline in the RMB exchange rate is the result of the market entity's adjustment of the previous RMB trading strategy, which is a normal fluctuation and does not need to be over-interpreted. However, the market is still convinced that they saw the "Yang Ma" figure in the process of RMB depreciation in this round - the nickname recently obtained by the People's Bank of China [microblogging].
“This is a game between the central bank [microblogging] and the arbitrageurs.†A macro-strategy hedge fund trader told the “First Financial Daily†that “the central bank has done a good job this time. If it continues to weaken, it is estimated that it will cause a lot of Selling."
The market generally believes that the central bank “knocked†the arbitrage hot money and guided the RMB depreciation. A number of investment banks and institutional sources have revealed to the reporter that the depreciation rate is large, and that investors are using this as an excuse to make profits, and there are also many losers. In Hong Kong, the most active offshore renminbi market, a large number of renminbi derivatives are on the front line.
Fall in love with the yuan
Armitage analyzed that the gradual appreciation of the renminbi and the high interest rates in the onshore market have already made the renminbi a carry trade currency. “The history of the yen as a carry trade currency shows that this is very risky for financial markets.â€
Carry trade is a high-yield asset that investors invest in low-yielding currencies and invest in high-yielding currencies to achieve higher return on investment. Before the Asian financial crisis in 1997, the yen spread trade prevailed and became a major driver of the financial crisis. The Japanese folk speculation market has been active in the "Taibian wife group".
Until the current round of depreciation, there is almost no risk of betting on the unilateral appreciation of the RMB. In addition to a short-term depreciation in 2008 and 2012, the RMB has risen 33% since 2005. Among them, the RMB appreciated by nearly 3% against the US dollar in 2013. In addition, the one-year deposit rate in the RMB is at least 3.25%, and the double income of the difference and spread is 6.25%.
The seemingly risk-free income has made arbitrage funds rush, and these data, which far exceed market expectations, indicate that capital has accelerated a large inflow – foreign direct investment (FDI) in January was 10.763 billion US dollars, up 16.11% year-on-year; bank valet in January Net settlements doubled to US$76.3 billion, a record high. This has increased China’s foreign exchange reserves by $42.7 billion last year, which has exceeded $3.8 trillion.
However, in just seven days, the onshore and offshore RMB market conditions have been rapidly reversed. Over the past week, the spot exchange rate of the RMB has fallen by more than 800 basis points, and the increase in the RMB exchange rate in the past six months has been written off. The spot exchange rate of the RMB against the US dollar fell by more than 1.3%, and the Hong Kong dollar depreciated against the US dollar on the spot exchange rate by more than 1.4%.
In the central bank price trend of the central bank, which reflects the "regulation" color, as of yesterday's 14 trading days in February, the cumulative decline was more than 1%, and the last 8 trading days fell by 1%.
Breaking one-way appreciation expectations
"Policy makers hope to break the market's view on the unilateral appreciation of the renminbi." Armitage told the "First Financial Daily" reporter. The central bank’s guidance of this devaluation seems to have become a market consensus. International and domestic investment banks have said in unison that part of the reason for the recent renminbi’s stagnation is that the central bank is hitting arbitrage hot money. At the same time, many researchers believe that this is a stress test before expanding the daily fluctuation range of the RMB spot exchange rate.
Among them, Yao Xing, a Chinese economist at Societe Generale, said in the "China's central bank's RMB experiment" report that the central bank does not want to see excessive appreciation of the renminbi driven by short-term speculative capital inflows. The renminbi has the characteristics of the carry trade currency, that is, the higher onshore interest rate and the gradual steady appreciation trend. She believes that the central bank can change and seems to be changing the second characteristic, pushing up the volatility of the renminbi by reversing the appreciation trend.
“The magnitude is very large.†Wang Ju, senior Asian foreign exchange strategist at HSBC, told the “First Financial Daily†that “CNH (offshore RMB exchange rate) has returned to the middle price level and reached the goal of the central bank to squeeze speculative funds.†She said that there is a lot of money to make more yuan in January each year. The current situation is that hedge funds that entered before January have already made a profit, and some investors have stopped buying losses.
Since there is no 1% mid-day fluctuation limit, the free Hong Kong offshore renminbi market can be said to be the vane of the appreciation of the renminbi. A large number of funds including hedge funds, long-term institutional investors, small and medium-sized enterprises, and high-net-worth clients are gathered here, both long and short-selling investors.
A fund manager of a RMB fund told this reporter that it is difficult to make money after shorting the renminbi, and that the renminbi has become a “crowded transactionâ€.è¶ This mid-price is lower, the market took advantage of this opportunity and the HSBC PMI (China Manufacturing Managers Index) fell to more than half a year of low-end excuses to profit, "the first round is a hedge fund." He said.
Hu Weijun, chief economist of Macquarie Capital Securities Greater China, told this reporter that as China's capital yields fall and risks rise, there will be more fixed income and monetary funds have the incentive to short the yuan.
Offshore derivative risk
The sharp decline in the renminbi has surprised many investors, and the risk of the offshore renminbi derivatives market is also at the tip of the iceberg.
According to a report by Deutsche Bank, the size of structured option products in the offshore renminbi market in Hong Kong is huge. The bank estimates that the turnover of RMB derivatives contracts last year was close to 250 billion US dollars. The turnover so far this year has reached 80 billion US dollars to 100 billion US dollars, which is nearly 40% of last year.
Feng Xiaozhong, general manager of Hang Seng Bank and head of treasury business and investment services, told the "First Financial Daily" reporter yesterday that every financial institution in Hong Kong has various exchange rate products packaged into options, and some hedges have investments with different leverage ratios. There is basically no transparency in the market.
The more common exchange rate derivatives include the RMB forwardable (DF) and non-deliverable forward (NDF), and the “target redemption forward†that emerged from last year has quickly become popular. The target redeemable forward contract is generally designed as a 12-month or 24-month contract, setting a “performance price†lower than the spot price and a “lower-end protection price†farther from the spot price. The monthly and offshore fixing price is once. Simply put, this product is a leveraged bet that pays off every month when the renminbi appreciates, but when the renminbi depreciates to a certain level, the losses accumulate quickly.
Wang Ju told this reporter that the price of such contracts last year was generally set at 6.3~6.4 (US$ to RMB), but this year investors have strong expectations for RMB appreciation, and many contracts are set at prices close to the current market level. This means that many of the above contract buyers have already stopped to leave, or choose to extend the contract price period.
Feng Xiaozhong said that the buyers of such contract products have both hedge funds and SME customers, and many contracts set at 6.1 have triggered automatic stop loss.
The hedge fund traders mentioned above said that if the renminbi continues to depreciate, it will lead to more contracts triggering automatic stop-loss orders to increase sales, which will make the offshore renminbi market more volatile.
Regarding whether foreign trade enterprises will be accidentally injured, Wang Ju’s answer is no, “For foreign trade enterprises with actual hedging needs, they will not leave at this level, and the situation will not be particularly painful.â€
Wang Ju also analyzed that the renminbi was generally weak before the two sessions, but it will regain strength after the two sessions. This represents the mainstream view of the market. In the medium and long term, the trend of RMB appreciation has not changed. The central bank will adjust the middle price after the people's appreciation expectations are weakened.
The tricks of regulators and arbitrageurs have only just begun. Yesterday, both the onshore and offshore RMB markets were quiet. An onshore trader told the China Business News that the NDF, which has risen for five consecutive days, has also stabilized, but the next trend is still going to be Look at several trading days.
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