Currency

CNYUSD depreciation factor:

(1) trade war causes the pressure on China export. PBoC is willing to ease the CNY to support the export.

(2) PBoC may have rate cut to support the economy if needed

CNYUSD anti-depreciation factor:

(1) spread of 3 month SHIBOR – LIBOR is close to zero, and expect to enlarge when Fed put more rate cut.

The China policy maker’s headache:

(1) intervening in currency markets to offset market pressures risking a new wave of reserve depletion;

(2) raising interest rates to defend the currency causing monetary tightening and risking economic weakness;

(3) let the currency depreciate along with market pressure risking capital outflows and a more abrupt move.

Fund Flow

Equity outflow and bond inflow become very significant

More utility sector inflow.

Recommendation

OW Utility, Gold. Keep close eye on China Equity