China resumes 'counter-cyclical factor' in forex


Aug 20– Aug 24, 2018

China has resumed a "counter-cyclical factor" in the foreign exchange regime since August, to hedge against market sentiment toward a weaker yuan, according to a statement on the central bank's website on Friday. "Influenced by a stronger US dollar and trade frictions, some pro-cyclical activities have shown up in the foreign exchange market. Based on an assessment of the market situation, banks, as the market makers for offering the yuan's central parity exchange rate against the dollar, have adjusted the regime," it said. The counter-cyclical factor is expected to help stabilize the yuan at a reasonable and equilibrium level in the future, said the People's Bank of China, the central bank, in the statement. In May 2017, a "counter-cyclical factor" was introduced for the first time to the existing pricing model of the yuan's daily trading reference rate, aiming to moderate pro-cyclical fluctuations driven by irrational sentiment in the foreign exchange market. It was suspended in January 2018, when the yuan appreciated against the dollar and the cross-border capital flows showed stable trends.

China revises regulations on foreign investment in banking sector

China's banking regulator on Thursday decided to cancel and revise certain regulations on foreign investment in the banking sector in a latest effort to push forward financial opening up. China will abolish management rules on overseas financial institutions' investment in domestic organs, applying the same market entry and administrative approval policies for both Chinese and foreign investment, according to a statement from the China Banking and Insurance Regulatory Commission. The commission will also cancel restrictions on foreign holdings in Chinese banking and asset management companies in three other documents. The new rules specify that when overseas institutions invest in Chinese commercial banks or rural financial organs, supervision and management on such organs should not be changed. The move comes as China is steadily advancing the opening up of its financial sector, with measures to reduce restrictions on foreign investors and allow more investment in equity and bond markets.

China's consumer confidence remains high in Q2: Nielsen

China's consumer confidence remained high in the second quarter of the year, according to a research report by global measurement and data analytics company Nielsen. The country's Consumer Confidence Index (CCI) released by Nielsen stood at 113 points in Q2, down two points from Q1 but still well above the baseline of 100 that demarcates between optimism and pessimism. Andy Zhao, president of Nielsen China, saw a resilient Chinese economy despite a more complex global economic situation. "The structure and production efficiency of the economy are steadily optimizing, and the transformation and upgrading of the economy continue to open new drivers for growth. That laid a solid foundation for high-quality economic development," he said. Nielsen's CCI index measures perceptions of local job prospects, personal finance and willingness to make purchases. All three components of the CCI stayed high in Q2, with local job prospects climbing seven points from 68 points in the same period last year.

Sector Overviews

Top-and bottom-5 performing CITIC securities sectors of this week


Indexes performance (as of Aug 24, 2018)


Market Outlook

1) The A-share market is still in the midst of the fifth round of historical big bottom, and the turnover rate hit as low as 143%. A sentiment reversal will need at least one of the two signals: One is the appearance of inflection point of deleveraging; the other is reform acceleration. We should track the solution to local debt issue to know when the former will occur and the fourth plenary session of the 19th CPC Central Committee to gain an insight of the latter.


2) The recent fast currency devaluation of some small countries brings about concerns over the rerun of the 1997 financial crisis; For the four BRIC countries which are representative of emerging economies, there is no need to over concern given their ratios of external debts/GDP and external debts/foreign exchange reserves are both low.


3) Stability first. Consumer stocks are still good products for allocation after they displayed later decline after the market slip. Investors may eye on the future and give attention to tech growth stocks, and if the reform accelerates, watch for the opportunities of banking stocks.



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