China FX reserves fall $512.66 bln in 2015, biggest annual drop on record
How big is $512 bn... remember India's total forex reserves is below $350 bn
China's foreign exchange is declining and it's a clear indication that China is struggling not only with slowing economy but also with Capital flows. China has been struggling with forex reserves decline for more than six months now. October month was the only exception when forex reserves rose by $11.39 bn.
China’s foreign-exchange reserves declined by $87.22 billion in November 2015. It then declined by another $107.9 bn in December 2015. Having said that - China's foreign exchange reserves still stands at $3.33 trillion but in the world of financial markets - it is not the absolute number that matters. What matters is the trend. That picture does not look pretty
The trigger point was China’s central bank decision to devalue the yuan by about 2% in August. It resulted in a record $93.9 billion drop in reserves in August itself. China since then has been worried about a faster depreciation of Yuan and hence been buying Yuan (selling dollars). The reason behind losing forex reserves.
The Big problem right now: The Yuan depreciation expectations coupled with huge Capital outflows. As long as market believes it, the trend might continue. It will all depend how seriously China's Central Bank wants to fight this trend.
Economic Cycles are very cruel. Remember how China built its reserves over last 10-12 years. China's Central Bank bought dollars to slow the yuan’s appreciation and now when the cycle has run its course, it's doing the reverse: Selling dollars to slow down the yuan's depreciation.
Disclaimer – The state of the market notes is Deepak’s perspective on the market. The column is purely for educational purpose. Nothing contained herein is a solicitation to trade or a recommendation of a specific trade. By reading this publication, you agree to make no trade relying in whole or in part on the comments of the writers