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The Yuan, China’s Growth, Path to Internationalization, Fundamental Analysis, China’s Economy, Stock Market, fx trader, forexFigure 3. Sourse: CEIC, Natioanl Bureau of Statistics

 

- Fifth, most affluent investors are yet aware of how to invest offshore.

- Sixth, it is more of a social bull market than anything else. Risk-taking and being on equal ground with peers on WeChat (China’s version of Facebook) are just one of the common traits of how socially competitive a typical Chinese can become, inspired by friends to join the bull run.

- Finally, availability of credit, monetary easing has lowered short, but not long term yields, due to cuts in interest rates and bank reserve requirements. The fall in short-term rates has thus fuelled stock speculation, as banks remain reluctant to lend to the real economy. This however should change, as the central bank has also said it will expand a pilot scheme on credit asset pledged relending, an extension of the PSL operation, (Pledged Supplementary Lending) which analysts expect to target smaller firms in time to come.

Are we seeing the well known trading adage “Sell in May and Go Away” happen in the Chinese stock market? Figure 4 shows it clearly. At the time of writing this article, the stock market fell by 13% between 14th and 19th June, thus wiping out 9 trillion Yuan.

 

The Yuan, China’s Growth, Path to Internationalization, Fundamental Analysis, China’s Economy, Stock Market, fx trader, forexFigure 4.

The country is getting close to allowing their domestic currency, the Yuan, to be exchanged without limits on any amount. China is expecting the Yuan to be included in the basket of currencies represented in the Special Drawing Rights (SDR) issued by the International Monetary Fund. Having the SDR status would also mean that central banks could start adding the Yuan to their reserves, thus adding more liquidity into the Chinese stocks and bonds markets.

The Yuan, China’s Growth, Path to Internationalization, Fundamental Analysis, China’s Economy, Stock Market, fx trader, forex USDCNHWeeklyFigure 5. Weekly USD/CNH

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