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"Black Swan" impacts global market financial institutions and sounds risk control alarm

Date: 2022-03-02
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Driven by the rising conflict between Russia and Ukraine and the exclusion of Russia from SWIFT in Europe and America, the global financial market has experienced violent fluctuations, and the capital risk appetite has been significantly impacted. In particular, the Russian ruble exchange rate dropped by nearly 30% in one day, which triggered financial institutions to strengthen trading risk control-foreign exchange trading institutions have reminded customers to pay close attention to market trends, and even some foreign exchange institutions have suspended the opening of ruble positions.

On March 1st, global asset prices stabilized, with the exchange rates of USD and RMB slightly lowered, while risky assets such as stocks generally rebounded during Asian trading hours. Many insiders pointed out that with the more unstable international geopolitical situation, the global economy, politics and even the industrial chain pattern may face a series of reshuffle in the future. How to avoid disadvantages, investors need to observe carefully and strictly control trading risks.

It is worth mentioning that the geopolitically sensitive gold market is favored by funds because of its safe-haven property. Investment targets including gold-related stocks, gold ETFs and gold futures receive capital inflows, and all parties in the market are generally optimistic about its future development.

 

Market fluctuates greatly

Strengthen trading risk control

After the mood cools down, the market is stabilizing. On March 1st, the ruble exchange rate was adjusted back on the basis of the previous day's plunge, and the USD/ruble quoted price was 105.08. On February 28th, the ruble once fell to 119.25 rubles per dollar, a record low, with a drop of nearly 30%. Statistics show that since the beginning of this year, the Russian ruble exchange rate has dropped by more than 40%.

In the violent market fluctuations, foreign exchange trading institutions have taken countermeasures. The Securities Times reporter learned from Jiasheng, a global online foreign exchange trader, that Jiasheng has suspended the opening trading of the ruble foreign exchange futures in view of the recent increased volatility. At the same time, the agency warned that there may be fluctuations in many other markets, and corn and wheat are only traded by telephone. Trading during the period of market volatility is extremely risky and not suitable for all investors.

The relevant person in charge of nanhua futures said that the recent foreign exchange fluctuation had a certain impact on the business of Henghua International (a subsidiary of nanhua futures Hongkong), but the overall risk was controllable. Henghua International also actively pays attention to recent risk factors, closely tracks market trends and strengthens risk control of customer transactions.

Looking back at history, Russia's ruble exchange rate once maintained at 30 rubles to one dollar for a long time. Then in 2014, Russia was sanctioned by the West because of the Crimea issue, and suffered a sharp drop in oil prices, which caused the ruble to plummet. From July 2014 to January 2015, the ruble fell by 48%, and the exchange rate fell to the 70 line. Recently, with the increase of sanctions in the West, the devaluation of ruble exchange rate has been further enlarged. On February 27th, the United States added new sanctions including the SWIFT ban and restrictions on the Russian central bank's deployment of foreign reserves, which caused market concerns.

After a lapse of one day, on March 1st, risk aversion cooled down. On the basis of the sharp increase in the previous few days, the US dollar index fell back below the 97 integer mark, and the RMB exchange rate returned to 6.31. Previously, the RMB exchange rate continuously broke through 6.32 and 6.31, and rose to 6.3025 on February 28th, the highest since April 2018.

On the same day, during the Asian trading session of the global stock market, risk assets generally rebounded. Among them, A-share Shanghai Composite Index closed up 0.77%, Nikkei 225 Index closed up 1.2%, and European and American stock index futures also generally rose. On the previous trading day, driven by risk aversion, global stock markets such as Europe and the United States experienced a certain degree of correction, and the volatility index VIX of the S&P 500 index soared again, and bonds gained favor again.

Li Chao, chief economist of Zheshang Securities, believes that at present, there is no need for the risk of further escalation of pricing war for major global assets. If the risk really happens, the Ukrainian crisis will rise to a positive conflict between the United States and Russia, and major assets will turn to gold, crude oil, military industry and money market funds.

Obviously, with the more unstable international geopolitical situation, the global economy, politics and even the industrial chain pattern may face a series of reshuffle in the future. How to avoid disadvantages, investors need to observe carefully and strictly control trading risks.

 

Hedging premium has already appeared

Gold price is still bullish in the medium and long term

For the geopolitically sensitive gold market, it is favored by funds because of its safe-haven property, and investment targets including gold-related stocks, gold ETF and gold futures receive capital inflows. Previously, on February 24th, the international gold price once rose to 1975.7 US dollars, up 65 US dollars that day. By March 1st, the international gold price remained around 1900 USD/oz. In February, the international gold price rose by 5.8%, the biggest monthly increase since May 2021.

'The price of gold tends to remain high for several months after the incident.' Juan Carlos Artigas, head of global research at the World Gold Council (WGC), said that historical data showed that in the tail events related to major geopolitical crises, gold often responded positively. Although the price fluctuated, the price of gold often remained high for several months after the events. In addition, gold has a deep-rooted and highly liquid market, with an average daily turnover of more than 120 billion US dollars and a small bid-ask spread. All these characteristics, together with the absence of credit risk in gold bars, make gold a sought-after safe-haven asset.

According to the statistics of the World Gold Council, the global central banks increased their holdings of gold by more than 4,500 tons in the last 10 years. By September 2021, the total holdings had increased by 15% compared with 10 years ago, reaching about 36,000 tons, the highest level in 31 years. In contrast to the continuous improvement of gold reserves, the sense of existence of the US dollar is declining. Among the foreign exchange reserves of various currencies in the world, the proportion of the US dollar has dropped to the lowest level in 25 years and fell below 60% for the first time.

Specifically, in Russia, the country has started to sell and reduce US debt substantially since the beginning of 2018. According to the statistics of the US Treasury Department, the proportion of Russian investors holding US Treasury bonds also dropped from the peak of 4.2% in 2009 to 0.1% at the end of 2021. The proportion of gold in Russia's central bank's foreign exchange reserves has increased to 22%.

Zhou Tuo, chief researcher of Ping An Futures, said that under the resonance of anti-inflation and hedging, the price of gold will continue to run strongly. The uncertainty of this Russia-Ukraine conflict is still continuing, and the tension between Russia and Ukraine strengthens inflation expectations through energy prices and boosts the price of gold. In addition, political factors such as the US mid-term elections and the Iranian nuclear agreement will also support the gold price.

'The price of gold is bullish in the medium and long term.' Xu Ying, a senior foreign exchange analyst at Dongzheng Derivatives Research Institute, believes that hedging premium has begun to appear in gold pricing, and the subsequent impact of Russia-Ukraine issue on gold price is closely related to whether there are more unexpected events. In the medium and long term, even if the impulse trading of geopolitics is ended in the gold market, the subsequent risk of stagflation due to the long-term economic fundamentals will further boost the gold price.


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