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The Appreciation Of The Renminbi Into A Catalyst For The Paper Industry

Mar 07, 2019

From the recent days, major paper companies have released performance forecasts, most companies expect a decline in earnings in 2018. For example, Nine Dragons expects its full-year results for 2018 to decrease by approximately 45% year-on-year, which is mainly due to the increase in raw material prices and the decline in product prices.

Therefore, although there is a trend of price hikes in the paper industry, with the continuous release of production capacity, the probability of a significant improvement in the demand side is not large. As a full-scale RMB concept stock, the recent strongening of the RMB has become the main reason for the rise of the paper stock market. If the renminbi continues to strengthen, paper stocks may break out even under the current underestimation.

At present, the offshore RMB exchange rate against the US dollar has both risen above the 6.7 mark, and the overall continued relatively strong pattern in the near future.

Year-to-date, the exchange rate of the RMB against the US dollar rose from 6.86 at the beginning of the year to 6.72 on February 23, 2019, an increase of 2.1%; the US dollar index rose by 0.4% during the same period.

To sum up, the recent rebound in the RMB exchange rate has mainly benefited from a correction in the US dollar index. Regardless of the new manufacturing orders from the US manufacturing PMI (63.5 June 2015 to December 51.3), December retail sales data (-1.2% qoq, lower than expected 0.2%), the US dollar Libor interest rate (from 2.9 since 2019) % fell to 2.7%), or from the US bond yield data (10-year US bond yield fell from 3.2% in November 2018 to 2.65% in February 2019), both showed that the US economic growth inflection point appeared.

In addition, the Federal Reserve issued a semi-annual monetary policy report, reaffirming that FOMC will remain patient in the adjustment of future interest rate policy, and the scale of assets and liabilities will “obviously exceed” pre-crisis levels.

Judging from the expectation of the RMB itself, the current proactive fiscal policy (tax reduction, increase of local government special bond issuance) and the marginal loose monetary policy economic growth rate are rising. All of these indicate that our economy has passed the period of rapid economic decline.

From the perspective of monetary policy differentiation, Guojin Securities believes that the US interest rate hike cycle is nearing its end (there is no increase in interest rates in 2019), the margin of Sino-US interest spreads, and the exchange rate of the RMB against the US dollar has appreciated.

Based on various factors, many business people believe that the renminbi's rise to the 6.7 mark is not a short-term instigation, but a long-term inflection point of the general trend.

Make up the market is worth looking forward to

At present, the PE stocks of Hong Kong stocks, such as Xiaolong, Chenming and Sunshine Paper, are 4.6 times, 5 times and 2.7 times respectively, and their corresponding dividend yields are 5%, 13.5% and 4.2%, respectively, which have roughly reflected the recent results. The impact of the profit warning. In addition, the current paper stocks have a trend of price hikes, and the profit per ton has rebounded from the low level in the fourth quarter of last year. As long as the most important factor - the renminbi continues to stabilize, the paper industry will have a high probability of breaking out and stepping out of a new round of upswing. .