• News
• 2024-08-08

RMB Breaks 7.27: Capital Inflow, Resource Value Bull Market?

Abstract: On March 22, 2024, the offshore Chinese yuan weakened against the US dollar. As of 9 PM, the exchange rate of the offshore Chinese yuan against the US dollar broke through the 7.27 threshold, reaching a low of 7.2799.

Reasons for depreciation: The Federal Reserve's decision to keep interest rates unchanged and maintain a strong stance, coupled with signals from our country that there is still room for reserve requirement ratio cuts and interest rate cuts, led to a corresponding decline in the yuan. Affected by this, the A-share market adjusted today, with the Shanghai Composite Index falling nearly 1%.

Main text:

The US dollar is in a difficult position, while gold benefits. The Chinese yuan relies on a vast ecosystem of its own, with limited overall depreciation and moderate devaluation, which is generally beneficial for exports.

Foreign trade data is evident. In the first two months of 2024, China's total value of goods trade imports and exports was 6.61 trillion yuan, a year-on-year increase of 8.7%, exceeding market expectations. Among them, the export value reached 3.75 trillion yuan, a year-on-year increase of 10.3%.

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When exports grow rapidly, the Chinese yuan exchange rate is easily supported. Because an increase in exports means an increase in surplus, and after obtaining US dollar foreign exchange, activities of selling US dollars and buying Chinese yuan increase, ultimately promoting the appreciation of the Chinese yuan.

Due to the expectation of three interest rate cuts by the US dollar in the second half of the year, it is expected that the Chinese yuan will continue to rebound or balance in the main trend. The overall interest rate cuts by the US dollar are beneficial for the appreciation of the Chinese yuan, but since they are small cuts, the appreciation of the Chinese yuan will also be relatively limited, with the expected offshore Chinese yuan exchange rate around 7.

Since all industries, except for new energy, are basically in a surplus cycle, the world is still in the process of reducing capacity, and conflicts among countries are dense, which is the most intuitive reflection. Conflicts are reshaping, or eliminating bad debts and starting over. Therefore, too rapid appreciation and depreciation are not conducive to the financial stability of our country.

The capital market is not short of money, but good companies. Therefore, resource companies, benefiting from the global currency devaluation, are expected to rise in price. Under the continuous strong promotion of gold, energy companies are expected to rise in inflation. Resource companies, such as upstream of new energy, are expected to be the most valuable sectors and directions under the joint efforts of the market and policy.

Chinese manufacturing will remain strong, especially with moderate devaluation of the Chinese yuan, the United States will face more pressure and more trouble in manufacturing competition. On March 22, Hongmeng Zhixing announced that after 86 days of listing, the order for the Question M9 has exceeded 60,000 units. The price of the Question M9 is around 500,000 yuan, and the sale of 60,000 cars is expected to bring in 30 billion yuan in revenue.At present, it appears that Huawei's automotive division is reenacting the smartphone industry's history, comprehensively outperforming foreign companies and capturing a significant share of the international market. This impact is disastrous for Japan, South Korea, and Europe. The automotive industry accounts for about 10% of Japan's GDP and reaches 40% in the manufacturing sector, with over 5.3 million people employed in related fields. Recently, Japanese wholly-owned factories in China have seen a significant drop in sales, signaling a major retreat.

In February, GAC Group's vehicle sales only reached 98,401 units, a substantial year-on-year decline of 38.96%; for the first two months of this year, GAC Group's cumulative sales stood at 230,371 units, a year-on-year decrease of 25.24%. You might wonder if Japan is afraid, and even joint ventures are not working. Additionally, there's a certain company, whose pro-Japanese packaging has changed, but it's still far from eliminating the impact.

The concept of Huawei's automobiles, due to China's efforts to control industry safety and manage the scale of the industrial chain, is expected to be highly anticipated in the automotive sector this year, with concepts related to Huawei's partners receiving considerable attention.

Globally, electrification is being promoted, which is a disruptive process for traditional energy economies and an evolutionary step for the planet. This will bring corresponding opportunities and risks of phasing out old applications. For old energy sources, they can coexist with new energy sources, so the expected impact is not significant, and there could even be a win-win situation. However, it is a trend that some backward economic models will be phased out by electrification. The expansion of global conflicts is a process of reshaping for smaller nations; this is an inevitable friction in the process of economic growth. Only by following the right leaders can one ultimately benefit. Electrification!