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Recently, the global financial market has changed dramatically, which can be called thrilling! On Friday, a financial tsunami swept the world unexpectedly, catching countless investors off guard. Japan stocks plunged 5.8%, their biggest one-day drop in more than a year; U.S. technology stocks have collapsed across the board, with Intel's stock price plummeting more than 25% in a single day, the biggest drop in 42 years; Even the Nasdaq, which has always been as stable as Mount Tai, could not escape the doom, at one point falling by 3%. This sudden financial turmoil is reminiscent of the financial crisis that swept the world in 2008.
However, in the midst of this gloom, there is one bright spot that stands out - that is, the strong performance of the renminbi exchange rate. Just when the global market was in chaos, the RMB exchange rate bucked the trend and soared from 7.24 to 7.14, a full 1,000 basis points! This increase not only recorded the largest one-day increase this year, but also made global investors look sideways.
In the face of such dramatic market changes, many people can't help but wonder: why has the renminbi become the first choice for safe-haven in the face of global market turmoil? What's the mystery behind this?
To answer this question, we must first look at the global economic environment. Recently, two important economic indicators have attracted great attention from the market: one is the decision of the Japan central bank to raise interest rates, and the other is the surge in the unemployment rate in United States. The simultaneous emergence of these two indicators can almost be said to be a prelude to a global recession.
The Bank of Japan's interest rate hike is of great significance. You know, Japan has implemented a zero-interest rate policy for nearly 30 years! This sudden interest rate hike not only broke the inherent pattern of Japan's economy, but also sent a strong signal to the world: the era of deflation may be over, and the global economy is entering a new cycle.
Looking at the United States, the soaring unemployment rate is even more alarming. You know, United States has always been a barometer of the global economy. Rising unemployment means more layoffs and lower consumer demand, which will undoubtedly have a knock-on effect on the economy as a whole.
Against this backdrop, global investors are looking for new safe-haven tools. At this time, the advantage of low valuation in the Chinese market is highlighted.
When it comes to valuation, we have to mention the A-share market. At present, the price-earnings ratio of A-shares is only about 10 times, which can be said to be the "cabbage price" in the world's major stock markets. By comparison, the S&P 500 in the United States is trading at a whopping 22 times earnings and the Nikkei 225 is trading at more than 16 times. Not to mention those hot technology stocks, the price-to-earnings ratio is often hundreds of times, like a bubble-full scene.
Some people may say that low valuations do not mean that they will rise. But don't forget, the market is cyclical. When valuations in other markets are already at all-time highs, it's natural for money to look for new investment opportunities. At this time, the Chinese market, whose valuation is at a historically low level, has undoubtedly become the best choice.
Not only that, but the undervaluation of the RMB exchange rate is also an important factor. According to purchasing power parity calculations, the reasonable exchange rate of the RMB against the US dollar should be around 4:1. At the current exchange rate of 7.14, there is obviously still a lot of room for appreciation.
Of course, the market is always uncertain. Just when everyone thought that A-shares would fall along with the global market, the A50 index gave everyone a surprise - not only did it not fall sharply, but it rose slightly. This is undoubtedly a strong proof of the resilience of the Chinese market.
At a time when the global economy is changing, the performance of the Chinese market has undoubtedly given investors a shot in the arm. But that doesn't mean we can sit back and relax. On the contrary, we should think calmly: why is the Chinese market unique in this global storm? What are the opportunities and challenges behind this?
Looking back at history, it is not difficult to find that the reincarnation of the economic cycle is an eternal theme. Just as the ancients said, "The moon is cloudy and sunny, and people have good and bad luck", and the economy also has ups and downs. The bubble economy in Japan in the 90s, the Internet bubble in 2000, and the subprime mortgage crisis in 2008 are all vivid examples of the cycle of economic cycles.
Now, we seem to be at the beginning of a new economic cycle. The valuations of United States technology stocks have surpassed the peak of the dot-com bubble in 2000, which is alarming. You know, the Nasdaq index plummeted from 5,000 points to 1,000 points that year, and it took a full 15 years to regain 5,000 points. History, although not simply repeated, is always strikingly similar.
In stark contrast, valuations in the Chinese market are currently at historically low levels. This contrast is an important reason why global funds flow to China. As the saying goes, "cheap is not good, good is not cheap", but in the financial market, this may not be true. Low valuations tend to mean more upside and less downside risk.
Of course, low valuations aren't the only advantage of the Chinese market. In recent years, China's achievements in scientific and technological innovation and industrial upgrading are obvious to all. From 5G to artificial intelligence, from new energy vehicles to biomedicine, Chinese companies are catching up with or even leading the world in more and more fields. This improvement of industrial strength is the fundamental driving force to support the long-term improvement of the Chinese market.
Interestingly, at a time when global markets are panicking, China's stock market has shown surprising resilience. Isn't the A50 index rising instead of falling, and this kind of "rising against the market" is the best proof that China's economy is full of confidence?
However, we must also be soberly aware that China's economy is not monolithic, and it also faces many challenges. For example, the adjustment of the real estate market, the pressure of local debt, and the acceleration of the aging of the population are all problems that we must face up to and solve.
As the saying goes, "opportunities and challenges coexist". The current global economic turmoil is both a challenge and an opportunity for China. On the one hand, global economic uncertainty may have an impact on China's exports. On the other hand, this also provides a rare window period for China to accelerate economic restructuring and improve the level of industrial chains.
At this critical juncture, we need to maintain strategic focus, persist in deepening reform and opening up, continuously optimize the business environment, and attract more global capital and technology. At the same time, we must also guard against financial risks and avoid asset bubbles.
Looking back at the strong performance of the renminbi this time, we can't help but think of the old saying: "Currency is a barometer of a country's economy". The appreciation of the renminbi not only reflects the confidence of the international market in China's economy, but also demonstrates China's increasingly important position in the global economic landscape.
However, we should also note that large fluctuations in exchange rates may have an impact on the real economy. For export companies, the appreciation of the renminbi means that costs rise and competitiveness decreases. Therefore, finding a balance between exchange rate appreciation and economic stability will be a major challenge for policymakers.
Finally, let's take the look back to the bigger picture. In these uncertain times, China, as the world's second largest economy, has a special responsibility. We must not only manage our own economy well, but also contribute to the stability of the global economy.
As the old saying goes, "The rise and fall of the world is the responsibility of the husband". In the face of the current global economic situation, everyone should make a difference. For ordinary investors, it may be the wisest choice to remain rational, diversify and focus on long-term returns.
For entrepreneurs, continuous innovation and competitiveness can be invincible in global competition. For policymakers, it is necessary not only to have an international vision, but also to be down-to-earth, to seek development in openness, and to achieve win-win results in cooperation.
The scenery should be long-sighted. When we look back at today while standing in the long river of history, we may find that the financial turmoil that has swept the world is just a small wave on the road to China's rise. What matters is how we can seize the opportunity in this storm, turn the crisis into an opportunity, and push China's economy to a new level.
Let us witness a new chapter in China's economy!