9 Jul 2015
China stock sell-off: Implications for the RMB – Nomura
FXStreet (Barcelona) - The Research Team at Nomura notes that the sharp sell-off in Chinese equities has led the markets to price in a significant RMB depreciation risk.
Key Quotes
“The sharp sell-off in China equities (CSI 300 down by 31.6% since 8 June 2015) and concerns over Greece have led to a significant increase in RMB depreciation risk being priced into the CNY NDF and CNH forward curves. Since the peak of the CSI-300 index on 8 June 2015, 12M USD/CNY and 12M USD/CNH have moved from pricing in 2.0% and 3.6% depreciation to 2.6% and 4.6% respectively as of 8 July 2015.“
“Market concerns are that the authorities will be unable to prevent an additional sell-off in China equities (so far the case), which will lead to a further unwinding of margin positions. This would then increase the risk of broader deleveraging in the economy and raise the risk of a hard economic landing. This is not Nomura’s base case, but historically when China has faced financial market/economic stress, the China bear camp has awakened.”
Key Quotes
“The sharp sell-off in China equities (CSI 300 down by 31.6% since 8 June 2015) and concerns over Greece have led to a significant increase in RMB depreciation risk being priced into the CNY NDF and CNH forward curves. Since the peak of the CSI-300 index on 8 June 2015, 12M USD/CNY and 12M USD/CNH have moved from pricing in 2.0% and 3.6% depreciation to 2.6% and 4.6% respectively as of 8 July 2015.“
“Market concerns are that the authorities will be unable to prevent an additional sell-off in China equities (so far the case), which will lead to a further unwinding of margin positions. This would then increase the risk of broader deleveraging in the economy and raise the risk of a hard economic landing. This is not Nomura’s base case, but historically when China has faced financial market/economic stress, the China bear camp has awakened.”