Daiwa’s Dr DOOM, Kevin Lai is back with his bearish views…he is looking for the *CNY to go to 7.50* by end 2016.
[image: http://vignette2.wikia.nocookie.net/marvel-microheroes/images/b/b8/Dr_doom.png/revision/latest?cb=20111013043828] <http://www.google.com.hk/url?sa=i&rct=j&q=&esrc=s&frm=1&source=images&cd=&cad=rja&uact=8&ved=0ahUKEwjT1tnQl8vJAhUFJ6YKHVUQAlQQjRwIBw&url=http%3A%2F%2Fmarvel-microheroes.wikia.com%2Fwiki%2FDoctor_Doom_(Victor_von_Doom)&psig=AFQjCNGKhzViTOkjvBqzBCcz0aCJWdxRrw&ust=1449627019772453> *Economist: Kevin Lai* Kevin Lai (852) 2848 4926 kevi...@hk.daiwacm.com For 2016, He is looking at these *5 key themes* to dominate our regional outlook: 1) An extended period of *dollar strength*, supported by geopolitical factors as well as the Fed’s policy normalisation. 2) Global *dollar debt deleveraging* will begin to take shape and may take several years to complete. 3*) “Reverse carry-trade” *will become a new trend in China, threatening to bring more money outflows and policy challenges. 4) *China *will try to *muddle through* between debt deflation and a currency shock; a further slowdown and outflows will threaten to bring more damage to the rest of Asia. 5) *Across the region*, after more rate cuts and *currency depreciations* in 2014 and 2015, the room for policy manoeuvring will become more limited. The pullback in dollar liquidity globally has already led to shocks in various Asian markets/economies, China has been the main pressure point and will remain so in 2016. He blvs global dollar deleveraging has not started yet evidences being 1) depreciating Asian currencies and 2) the potential significant impact for the economies with weaker fundamentals, greater credit exposure and greater dependence on China. Moreover, about 61% of all loans are direct loans to China’s non-bank sector. In reality, this percentage should be even higher because many local Hong Kong borrowers have eventually invested the borrowed money directly or indirectly in China. The data shows that, after reaching their peak in mid-2015, total loans have fallen by only USD25bn to reach USD959bn in October 2015. *In other words, there has been a deleveraging of only 2.6%.* *Reverse carry-trades* Typically, and far more effective, to deal with money outflows, a central bank is best advised to raise interest rates and tighten the domestic money supply. Russia has done it. Brazil has done it. India has done it. However, the PBOC has been doing exactly the opposite. The loss of the yield advantage and the more rapid CNY supply relative to the USD supply has inevitably created even more pressure on outflows and the currency. Monetary easing simply gives the market more ammunition and excuses to sell the currency. Many Chinese and foreign corporates have started to unwind their multi-year CNY-long/USD-short positions, especially after the PBOC announced major changes to its exchange rate policy on 11 August 2015. If a corporate relied on dollar borrowing in the past, it is now under pressure to unwind and is seeing greater incentives to switch to CNY borrowing. In the past, exporters usually converted their dollar revenue instantly into CNY. Now, there is a greater incentive to not do so and to leave it in dollars or other foreign currencies. Wealthy Chinese individuals are also seeing similar incentives to switch from CNY deposits to seek higher yields offshore and hedge against future CNY depreciation. All these actions will certainly lead to more money outflows and more downward pressure on the CNY next year. Worst, carry-traders are not only covering their CNY-long/USD-short positions, there are also growing signs of what we call a “reverse carry-trade”. Aggressive monetary easing has made it much easier and cheaper to significantly borrow CNY onshore. Banks, financial institutions and corporates are seeing profitable opportunities to establish fresh CNY-short/USD-long positions. On 10 November 2015, according to Reuters, the PBOC suspended trading in bond repos and CNY account financing for offshore CNY-clearing banks and related offshore participant banks. This was done in an attempt to limit the transfer of money looking to take advantage of lower borrowing costs inside China and higher yields outside China -- Kindly email stock reports at STOCKRESEARCHER@googlegroups.com For sharing knowledge -- NIFTYVIEWS.COM NOW A FREE OPEN SOURCE WEBSITE. http://www.niftyviews.com/ Disclaimer :- "The opinions expressed by the members on this board are based on their individual experience and perceptions and to share information with other members with the best of intentions to help fellow members in investment decisions as equity investment is a risky venture.The administrator of www.Niftyviews.com just provide a platform for the authors to express their opinion and take no guarantee for the genuineness of the same."ANY member of this forum doesnt prepare or publish any research report; or ii. provide research report; or iii. make 'buy/sell/hold' recommendation; or iv. give price target; --- You received this message because you are subscribed to the Google Groups "Niftyviews.com" group. 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