On the heels of China’s move to devalue the yuan on August 11, the market’s attention abruptly shifted to something we’d been discussing for quite some time. Namely, China’s rapidly depleting FX reserves.
Last June, China’s stock market miracle ended in tears.
The SHCOMP’s inexorable, parabolic ascent was to a large degree facilitated by an explosion of margin debt, the likes of which could not be found in any other major market across the globe. For instance, by the end of June, the outstanding balance of margin transactions as a percentage of the SHCOMP’s free float market cap was nearly 14% compared to just 5.5% for the S&P and less than 1% for the TOPIX.
Last night we reported that the PBoC is now considering a Tobin tax on FX transactions.
The follows reports that a series of big name money managers - or, as China calls them, “speculators,” “predators,” and “crocodiles” - have placed outsized bets against the yuan.
After three consecutive declines in China's Foreign Reserves in the November-January period, which averaged nearly $100 billion per month (with particular attention paid to last month's number), consensus expectations were for a moderation in reserve outflows in February to approximately $40 billion in February; moments ago the PBOC reported, that as expected, reserve outflow "slowed down" to just $28.6 billion, bringing China's total foreign reserves to $3.2 trillion, the lowest level since early 2012.