Will the RMB shorts dare to make a comeback?
"For those who are trying to short the renminbi, China has been dealing with it a few years ago, and they are very familiar with each other. It can even be said that the memory is still fresh." Pan Gongsheng, deputy governor of the central bank(推荐阅读>>>Pan Gongsheng yells at the renminbi short: I have handed it over a few years ago.)
The current RMB exchange rate has gradually approached the low point in recent years. Market participants generally believe that the recent decline in the renminbi may make some short-selling forces ready to move. However, because of the painful lessons of the past, they will be very cautious, especially after Pan Gongsheng’s words are not easy to shoot. According to statistics, the RMB short position lost about 35 billion US dollars in 2017.
On October 26, Pan Gongsheng, the deputy governor of the central bank, said with enthusiasm at the press conference of the new state office: "For those who tried to short the renminbi, China had been dealing with it a few years ago, and they are very familiar with each other, and even can be said to be memories. It’s still new.” This sentence is considered by the market to be a short-selling short-selling by the central bank. Pan Gongsheng also said that the RMB has depreciated compared with the currencies of developed economies and compared with the currencies of major emerging economies, but it is still a relatively stable currency. China has the foundation, ability and confidence to maintain the basic stability of the RMB exchange rate at a reasonable and balanced level. It will continue to actively adopt macro-prudential policies and other measures to stabilize the foreign exchange market.
Pan Gongsheng's confident expression has greatly boosted the confidence of the foreign exchange market. On the same day, the central parity of the RMB against the US dollar was lowered for four consecutive days, creating a new low since January 4, 2017. In the morning, the offshore RMB fell below the 6.97 mark against the US dollar and fell below the 6.96 mark on the shore. However, by around 3 pm, the renminbi showed a sharp rise, and the bottom rebounded nearly 300 basis points. However, the current RMB exchange rate is still at a low level in recent years. Is the RMB short-selling still coming back?
2016 RMB “V” counterattack to win shorts
Before discussing whether the shorts will short the renminbi, let us first look at 2016, when the central bank twice played against the short-sellers at the beginning of the year and won no surprise.
In 2015, the RMB exchange rate against the US dollar depreciated by nearly 6%. In 2016, the RMB continued to fall. On January 4, 2016, the first trading day of the New Year, the offshore exchange rate of the RMB fell by 600 basis points, dragging the onshore exchange rate from 6.49 to 6.52. In the first trading week of the new year, the yuan fell for four days. In particular, on January 6, the central parity of the RMB was lowered by 145 points to the lowest of 6.5314 points since April 2011. The offshore exchange rate of the offshore and onshore RMB exchange rates fell below 6.73, and the onshore spot exchange rate was intraday. It fell below 6.56 and both fell by a few hundred basis points, respectively, since the establishment of the offshore market in 2009 and the lowest since March 2011. The exchange rate difference between the two places has expanded to around 1600 basis points, a record high.
For a time, the market's expectation of RMB depreciation was greatly strengthened, and many citizens rushed to exchange RMB for US dollars. At the end of the first trading week of the panicked New Year, the offshore and onshore exchange rates depreciated by 1.47% and 1.74% respectively. In addition, the domestic stock market fell sharply, fears spread across the market, and many people exchanged RMB and even the Chinese economy. The situation is even more pessimistic.
In the second week, when everyone continued to depreciate the renminbi, the situation reversed. On January 11, the central parity of the RMB rose sharply to 6.5626, which was directly higher than the previous week's closing price by more than 250 points. Affected by this news, the onshore RMB opened up. According to the data of the China Foreign Exchange Trading Center, at 23:30 on January 11th, Beijing time, the onshore RMB was quoted at 6.5695 yuan against the US dollar, which was 0.37% higher than the end of the previous day's night, which was the first increase in four trading days; the day was 16:30. The official on-shore RMB against the US dollar closing price was reported at 6.5822, which was also 0.10% higher than the official closing price of the previous day. Offshore RMB against the US dollar once rose nearly 900 points in the day, with intraday fluctuations exceeding 1,000 points.
On January 12, the offshore RMB continued to rebound strongly, and the “V” counterattack was staged the next day. It rose to 6.5660 in early trading on the same day, which was nearly 2,000 points lower than the historical low set on January 7. The spread with the onshore spot exchange rate narrowed rapidly from 1600 points in the previous few days and once collapsed. The RMB clearly won short positions.
The second wave of the bears failed again in the same year.
Then, after the Spring Festival of 2016, many hedge funds made a comeback, betting that China's foreign exchange reserves continued to decline sharply and the deficit in the settlement and sale of foreign exchange gradually expanded, setting off a “second wave” of RMB vacancy.
What makes hedge funds quite disappointing is that from March to April 2016, China’s foreign exchange reserves and the deficit data of foreign exchange settlements have improved, and they have returned without success. In the past two months, the central bank did not consume huge foreign exchange reserves to intervene in the foreign exchange market, which caused the foreign exchange reserves to fall sharply. Instead, it took other measures to slow down the capital outflow rate and completely defeated the hedge fund short-selling calculation.
Insiders pointed out that the failure of hedge funds ended mainly for two reasons. First, the Chinese central bank seems to have already seen the short-selling of hedge funds, and adopted various measures to slow the rate of capital outflows, so that they could not rely on the external reserves to drop sharply. The data is short-selling the arbitrage of the yuan; the second is that they underestimate the synergy effect of the G20 central banks. After the G20 central bank governor and the finance ministers meeting was held at the end of February, the central banks seemed to reach a certain tacit agreement, that is, the US dollar suspends interest rate hikes to Europe, The Bank of Japan’s time window has increased its monetary policy to stimulate economic growth, while Europe and the Bank of Japan have acquiesced in the appreciation of their currencies (that is, they no longer compete for depreciation) and eased the pressure on the dollar to appreciate.
What kind of combination does the central bank rely on to retire?
How does the central bank fight against short positions in the offshore market? The central bank’s combination of boxing first bought RMB in the foreign exchange market, sold the US dollar, pulled up the exchange rate, reduced the exchange rate, and eased the pressure of depreciation. At the same time, it tightened the RMB liquidity in the offshore market, raised the offshore RMB lending rate, and increased the short position. The cost of forcing the shorts can only retreat.
Some traders revealed that at the time of the crisis on January 11, at least two Chinese banks sold US dollars around 6.5850 and led other self-operated discs to follow the sale of US dollars. Prior to this, at least two Chinese-funded banks continued to sell dollars, and the renminbi against the US dollar was defensive at 6.5850.
Secondly, the central bank recovered the offshore RMB through the Chinese bank. After that, it did not put it into the lending market. It even required some domestic banks to manage the net outflow under the capital account, reducing the concentrated cross-border outflow of RMB in the short term and completely tightening offshore. fluidity. This has intensified the demand for offshore renminbi lending market, resulting in a sharp increase in the lending rate of offshore renminbi markets such as Hong Kong and Taiwan.
The central bank’s move has achieved remarkable results. In the face of rising capital costs, shorts may choose to continue rolling borrowing, but short-selling gains will fall sharply; or forced to close and close positions, which in turn will help the offshore RMB exchange rate rise. If the liquidation is huge, the RMB exchange rate may rise sharply.
In addition, during the week of the devaluation of the renminbi, Chinese high-level officials repeatedly expressed their confidence in cracking down on speculative forces. On January 7, the central bank official website published an article saying that some speculative forces tried to speculate on the renminbi and profit from it. Its trading behavior has nothing to do with the needs of the real economy. It does not represent the real market supply and demand. It will only lead to abnormal fluctuations in the RMB exchange rate and make a mistake to the market. Price signal. Faced with these speculative forces, the People's Bank of China has the ability to maintain the basic stability of the RMB exchange rate at a reasonable and balanced level.
Will the renminbi bears return to the rivers and lakes now?
The current RMB exchange rate has gradually approached the low point in recent years. On October 26, the central parity of the RMB against the US dollar was set at 6.9510 yuan, the first time since January 5, 2017, it fell below 6.95. On the same day, the spot exchange rate of RMB against the US dollar fell below 6.96 yuan, the lowest to 6.9647 yuan, less than 20 basis points from the low point of 6.9666 on December 28, 2016; the offshore RMB once fell below 6.97 yuan, the lowest to 6.9761 Yuan, from the end of 2016, the lowest point of 6.9880 yuan is also less than 120 basis points.
Under such circumstances, is it possible for the renminbi shorts to return to the rivers and lakes? Market participants generally believe that the recent decline in the renminbi may make some short-selling forces eager to move, but because of the painful lessons of the past, they will be very cautious, especially after Pan Gongsheng shouted.
A related person from DBS has previously said that traders have experienced painful lessons in the transactions of previous years. No one dares to establish high short trades this time. Just last year, the RMB exchange rate against the US dollar rebounded by 7%, and speculators were caught off guard. According to statistics, the RMB short position lost about 35 billion US dollars in 2017.
Foreign exchange expert Han Huishi also believes that it is very difficult to short the renminbi in reality. First, the cost and benefit of exchange rate speculation do not match very well. China implements the “real demand” management of foreign exchange settlement and sales. Once the amount of false report is large, it is easy to be discovered by supervision. Once caught, it is not only a heavy penalty but also a prison sentence. Therefore, most large-scale enterprises will not easily take risks.
Second, international speculative capital is not enough to short the yuan. International speculative capital is generally not confronted with countries with strong foreign exchange reserves. The reason is very simple. Most of the funds for speculative capital are also borrowed, and the general cost is high. If you can't win the gambling in a short time, you will have a dilemma. This is the same as the high interest rate of borrowing money to stocks.
In addition, because China's capital projects have not yet been fully opened, it is very difficult for international speculative capital to raise RMB funds on a large scale and at low cost. If the RMB cannot be raised on a large scale, it means that it is basically impossible to short-sell the RMB on a large scale.
In addition to the high short-selling cost, China's current balance of payments remains balanced, and the foreign exchange market is generally stable. It is also an important guarantee that you don't have to worry about shorting the renminbi.
Pan Gongsheng also mentioned that he has taken and will continue to actively adopt macro-prudential policies and other measures to stabilize the foreign exchange market. The industry believes that these measures may include: strengthening the macro-prudential management of foreign exchange transactions and capital flows, and increasing the crackdown on foreign exchange violations.
(Article source: Beijing Youth Daily)
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