Chinese Analysts: RRR Cut Isn't Loosening

The PBoC will slash the RRR by 1 percent in January to alleviate tightening pressure, not to shift into a loosening stance. Two analyst reports discuss this reality, one focused on A-share performance and the other on the macro economy.

iFeng: 海通证券:降准或刺激市场有小的短反弹 但持续性堪忧
On January 4, the central bank announced that it decided to cut the deposit reserve ratio of financial institutions by 1 percentage point. On the same day, the Shanghai Composite Index rose 2.1%. We believe that the RRR cut or stimulus market has a small short rebound, but the sustainability is worrying. The market rhythm of 2019 depends on the comparison of policy relaxation and the fundamental strength of the downside, and it is not yet the best time to swing.
Haitong Securities analyst also sees 2019 as similar to 2010 and 2016, a year of volatility (rhythm year) for A-shares.
Rhythm year: 2010, 2016. The distinctive feature of the rhythm year is the increase in market volatility. For example, the Shanghai Composite Index rose by -14.3% in 2010, but the high and low points in the year reached 42.5%. In 2016, the Shanghai Composite Index rose by -12.3%. 34.1%. Under the rhythm market, the overall performance and market deviation of the fund is weaker than the structural year and stronger than the trend year. For example, the 2010 Shanghai-Shenzhen 300 is up or down -12.5%. The VS partial-share hybrid fund has an average return of 3.9% in the same year, 2016-11.3% vs. -14.0%. The rhythm year requires a high demand for the fund manager's timing ability. In the rebound phase, the decisive warehousing increases the profit, and when the retreat falls, the position is reduced in time to reduce the loss. For example, in 2010, the top 10 partial-share hybrid funds will fall in the April-June period. 82.36% (10Q1) is slightly lower than the overall average of 82.41%, while the rebound position of 84.0% (10Q3) in July-November is slightly higher than the overall average of 83.7%. In addition, due to the superior performance of small and medium-sized boards in 2010, structural factors also have a greater impact on fund performance. In 2016, the top 10 partial-share hybrid funds had a 77.1% (15Q4) stock position in January, which was significantly lower than the overall average of 82.7%. In the second half of the year, the rebound position was 89.5% (16Q4), which was significantly higher than the overall average of 81.4%.
Guangfa agrees there is no loosening of PBoC policy.

iFeng: 广发策略:全面降准并非货币政策转向“大水漫灌”式宽松
We released the report on the National Day last year, "Water Poverty, Hou Jiayin - A Shares Fourth Quarter Strategic Outlook", which first proposed that the global liquidity inflection point will have a greater impact on A shares. “Water deficiencies” US stocks, A-shares, risky currencies, and commodities have experienced “high volatility” declines. In essence, investor differences under the global liquidity turning point have been magnified. In the historical global liquidity crisis, there is often a synergistic decline in the high volatility of risk assets, such as the 08 subprime mortgage crisis and the 11 Euro debt crisis. This round can be regarded as a “deflationary crisis”.

● The first condition in spring is: good water, good luck, global risk-on

Our last week’s weekly report reminded us that the first condition of the 19-year spring start-up “risk of important incidents has risen” has emerged. Fed Chairman Powell’s “no hesitation when necessary to adjust the contraction” on the 4th, compared with the FOMC meeting in December, “will still maintain the pace of shrinking” is obviously “pig the pigeon”, which means that the global liquidity tightening is expected to have marginal easing, and this is really buzzing. The trigger for the opening of the A-share spring. Analogy At the beginning of 12, the European Central Bank LTRO resolved the global liquidity crisis, and A-shares turned sharply to trigger the spring stir.

● The second condition of spring turmoil is also ripe: expectations for credit expansion improve

Premier Li Keqiang and Liu He, the deputy prime minister in charge of financial work, and Yi Gang, the central bank governor, visited the bank. The Chinese leaders inspected the bank and released a unified signal that the decision-making layer actively promoted the wide-currency-to-wide credit transmission. Whether credit expansion can be effective in the short term, The market's previous cautious view of credit expansion will have marginal loosening, which is the second important factor that constitutes spring incitement.

● Different from some views: comprehensive RRR reduction is not a change in monetary policy to “big flood irrigation”

On the 4th, the government bond futures fell and the RMB exchange rate was relatively stable, indicating that the important market dominated by professional investors did not regard this comprehensive RRR cut as a signal that the monetary policy turned to “big flood irrigation”. Therefore, this comprehensive RRR cut is not the core factor for opening the spring turmoil. It is also not advisable to refer to the experience of whether the current round of spring turmoil is open after the overall downgrade in history. If the next short-term interest rate is lower than the previous stage, it can be seen as a looser signal to the monetary policy. If there is a further expansion of the current spring space, this is equivalent to instigating an option in the spring.

● 2+1 (two facts, one option) driven by the spring of the factor

The spring spurs driven by 2+1 (two facts, one option) are officially opened, and the marginal mitigation of global liquidity inflection points is the core driver. The improvement of risk appetite at home and abroad and the expected improvement of social welfare have helped the rebound of most stocks, so we judge that it is general. Directly benefiting from the financial sector, as well as the previous oversold “water-poor” suffered from liquidity discounts, will benefit more. In the spring, we will give priority to recommendations: finance (brokers, insurance, banks) and growth stocks (media, computers). The theme investment focuses on regional coordination (Xiong, Xinjiang). Whether the social welfare and credit exceed expectations is a follow-up indicator to observe whether further expansion after the establishment of this spring's instigation.

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