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QE Foreign Capital Flows Into A Shares: Blue Chips May Rise Another 15%

2015/1/25 16:47:00 399

QEForeign CapitalA-Share

On Thursday, European Central Bank President Draghi announced that from March this year, he would purchase the national bonds and institutional bonds of the member countries of the euro area at a rate of 60 billion euros per month, if necessary, until the inflation rate rose to 2%. This means that the European Central Bank has launched a comprehensive QE of more than one trillion euros. As a result, international gold prices, oil prices, and global stock markets responded quickly, and commodity and capital markets rebounded. We will analyze the impact of QE on our daily life one by one through this article.

   Impact I

Studying abroad in Europe will be cheaper

The impact of QE on the euro area, euro It may still be in decline. Under the financial tightening and private sector deleveraging in European countries, the policy of "insufficient coverage, more water" will not change the decline of entities.

The devaluation of the euro is good for the dollar. In the future, the US dollar may still be the strongest currency in the world, stronger than other currencies. At present, the accelerated easing of the European Central Bank and the Bank of Japan will continue to depress the exchange rates of the euro and the yen. In addition, the fundamentals of the U.S. economy are relatively strong and the easing of the Federal Reserve is weakened, so the prospect of the dollar will be "more beautiful".

In the future, although the RMB has depreciation pressure against the US dollar, it will remain strong against the euro and other currencies. Guan Qingyou, the director of Minsheng Securities Research Institute, pointed out that there is pressure to devalue the RMB against the US dollar, but under the intervention of the central bank, the devaluation will not be too large, which is also to prevent capital flight. The overall two-way fluctuation of the RMB exchange rate against the US dollar; However, as the RMB is still pegged to the US dollar, the exchange rate of the RMB against the euro and other currencies will still show a trend of appreciation.

To sum up, the euro will continue to fall, bringing benefits to Chinese citizens traveling to Europe and studying abroad. The staff of the travel agency told the reporter that the devaluation of the euro has reduced the cost of domestic tourists traveling to Europe to some extent, especially in terms of food and accommodation. In addition, the biggest cost of outbound travel is the cost of air tickets. At present, the global oil price has dropped, and the overall quotation of European routes may decline in the future.

   Impact II

"Aunt" wants to copy the bottom again gold

After the announcement of the European QE news, the international gold price continued to rebound. Recently, many media reported that "China's Aunt" was eager to try again, and planned to buy gold at the bottom. But experts believe that the height of gold rebound is limited.

"From the perspective of asset allocation of major categories, the long-term downward trend of gold and other bulk commodities has been established." Tian Hanqing, deputy general manager of Huatai Berry, pointed out that the impact of the European version of QE on global bulk commodities is short-term. QE is good for bulk commodities with strong financial and hedging attributes, such as gold and silver. However, taking into account such factors as the decline of oil prices, sluggish demand leading to global deflation, the appreciation of the US dollar, and the difficulty in recovering the volatility to 2008 and 2012, the height of gold's rise in this round will not be too high.

QE will not change the general direction of the bear market of production commodities.

   Impact III

Favorable inflow of foreign capital China Stock Market

As mentioned earlier, under the European QE, the RMB is expected to become a safe haven for global funds. In the context of RMB internationalization, the People's Bank of China intends to maintain the stability of the RMB, which brings about a net inflow of funds. In 2013, affected by the US QE exit, emerging market countries experienced capital outflows, but the inflow of funds to China increased.

Foreign capital flows into a country for a long time, which is beneficial to its capital market. Ren Zeping of Guotai Junan Macro believes that the European version of QE is generally good for A shares. One of the characteristics of the new bull market is leverage trading, with sharp rises and falls. In this case, the inflow of foreign capital will further increase the volatility of the A-share market, and the main theme of the A-share bull market will remain unchanged. Guohai Franklin also said that despite the previous market shocks, China's stock market is expected to have a good long-term trend. Large market blue chips with high dividends and low P/E ratios are preferred by foreign institutions. From the perspective of valuation repair, blue chips are expected to have at least 15% more room for growth.


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