Podcast With Angela on RMB

Sun Xiao He (Angela) is from the VP treasury department global trading desk, bank of China Limited, Singapore branch.

Angela has been market-making for RMB futures since 2015 and she has been working on liquidity provision to SGX RMB products and for various other exchanges around the globe. She has extensive experience with FX and Derivatives products where she focuses on FICC product & strategy development for the Singapore Branch.

In this post, we will cover some of the main points that were derived from the podcast that will help global traders assess the market for Chinese currency (Yuan or RMB) in the second half of 2022.
 

1. Economic Outlook

The economic outlook is uncertain now in comparison to the start of the year, but it is generally projected to be gloomy for the second half of 2022. This is due to several indicators such as the revised GDP forecast from 4.4% to 3.6%, coupled with high inflation, and aggressive rate hikes.

Additionally, there are also several risk factors that contribute to the economic outlook including inflation, central banks, policies, and geopolitical developments.
 

2. Supply Chain Disruptions

Trade has been affected by supply chain disruptions, manifesting in factory shutdowns or port and trade route disruptions due to the lockdowns.

Nonetheless, these measures have largely alleviated towards the end of the first half of the year. Going deeper into the second half of 2022, we'll see a softening of external demand.

Small-scale lockdowns, albeit having less impact on the economy, will still have an impact on the supply chain in the foreseeable future.
 

3. Real Estate Sector Bonds

For the real estate sector, the government has already stepped in to encourage lenders and buyers to go into the property market and there are plans to help developers repay debts.

On top of that, the Chinese government has launched a new series of measures to lure back foreign investors into the bond market. These measures include streamlining, cutting down service fees, and improving access to FX hedging throughout onshore or offshore markets. 

In the long-term, global investors’ portfolios are still very much under-allocated in Chinese assets and it is likely that allocation will increase which is positive for RMB.  
 

2022 Forecast and Outlook

The Yuan has been very resilient because the Chinese economy is fundamentally strong. However, the weakness is in internal demand in China. We see imports drop to only 2.3% in July despite the lifting of the lockdown, which is well below the estimate of 4.5%. Yet, as long as the trade surplus is large and growing, the fundamental support is there for the Yuan.

• Recession 

The indicator that the market watches very closely is the two to ten-year yield inversion. That is a model that predicts a recession, there are some signs such as the regular rate hikes hurting the economy and some trouble in the job markets in the US and Europe. However, these remain anecdotal for now. Moreover, examples such as hiring freezes in Silicon Valley and financial hubs remain un-reflected in the job data.

Before any data appear, we must remain cautious about recession talks. Even with the BOE declaring that recession is on the horizon, there is the ECB remaining that doesn’t see recession probability yet. These uncertainties will drive the FX market to be more volatile in the second half of 2022.

From Angela’s view, RMB will be range bound but that range will be very wide. It will be likely that we see daily ranges of 200 to 500 pips and monthly ranges of up to 2000 pips. That would be on a normal day without any event risks.
 

About the Podcast

This podcast is represented as of August 2022, however, the events and trends indicated may have changed. Do take into account ongoing factors as factors of consideration before any form of investment.
 

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