Depreciation of RMB is the key - Interviewing Jerff Lee (2)
Sino-US trade conflicts have once again become tense, and the stock market has also slumped. Jerff Lee, Strategist of Amber Hill Capital, said in an interview that the Sino-US trade war is in a stalemate in the first half of the year. If the two countries cannot reach an agreement, there will be greater negative impact on the global economy. In addition to stagnated economic growth, the depreciation of the RMB is more likely to cause a financial turmoil.
In terms of global economic growth, he pointed out that the IMF reported in the fourth quarter of last year, at the beginning of the trade war, that if the trade war continues, global economic growth will fall by 0.2%. In fact, China, the United States, Australia and South Korea, the GDP growth slowed in the first quarter. If the trade war cannot be resolved in June, market risks will rise again. The Chinese and US stock markets will fall, and Hong Kong stocks can hardly remain unscathed.
In terms of the RMB exchange rate, Jerff Lee believes that if the Sino-US trade negotiations finally go to a total deadlock and the tariffs are not lifted, the RMB will be the only tool that can offset the impact. It is estimated that the RMB needs to be devalued to 7 to 7.1 to offset the increase in tariffs 10% to 25%. However, the depreciation of RMB may cause funds outflow to USD market, or the real estate market, foreign investment would also be reduced, and the currency depreciation is generally unhealthy for the economy. Taking the 1997 financial turmoil as an example, it was a chain reaction triggered by the plunging of the Thai baht. He pointed out that if currency fluctuations are too big and hit the economy as a black swan, it can kill a certain market tracelessly. Accordingly, the market should pay attention to the risk of RMB depreciation.
In addition to the Sino-US trade war, commodity price movements also deserve attention. In terms of oil prices, Jerff pointed out that New York oil futures rose to more than USD 70 per barrel in the second quarter, mainly due to the US sanctions imposed by Iran at the end of April. Oil prices at the moment were not at an ideal level for many economic systems around the world. Secondly, the major changes in raw material prices will also affect the real economy. This situation also has the opportunity to appear in the third and fourth seasons. The Brazilian water tyrants collapsed earlier this year and the iron sand mining was affected. Brazil has closed many iron sand mines. Prices will keep fluctuating in the second half of the year.