Outline of the Fiscal Year:
【Market Watch 1】A-shares: China's stock market rebounded strongly due to the superposition of multiple positive factors
【Market Watch 2】Asian bonds: Real interest rates are still high, and Asian central banks have asked for interest rate cuts this year
【Market Watch 3】Overseas: The GDP growth rate of the United States in the fourth quarter was stronger than expected, and the market postponed the forecast of the timing of interest rate cuts
Monetary and fiscal policies continue to increase, helping to boost expectations for China's stock market
- The policy increase since the second half of 2023 continues. Last week, the People's Bank of China (PBOC) announced a 0.5 percentage point RRR cut and a 0.25 percentage point cut in the relending and rediscount rates for rural and small businesses.
- At the end of last year, the central bank also restarted the Collateral Supplementary Loan (PSL) program to support local governments' urban renewal projects. Throughout 2024, the implementation of a larger PSL program is likely to continue.
- With the lagged effect of monetary and fiscal increases, the bottoming out and rebounding trend of China's economy will help promote the bottoming out and rebounding of China's stock market.
This chart is taken from Global Markets in China Edition, Q1 2024.
Source: Wind, Bloomberg, data as of 2024.01.26.
A-shares: China's stock market rebounded strongly due to multiple positive factors
China's stock market rebounded strongly due to multiple positive factors:
As pessimism has been intensively vented, driven by multiple favorable factors such as unexpected RRR and interest rate cuts, market value management or inclusion in the performance appraisal of central enterprises, and real estate policies, China's stock market ushered in a strong rebound last week, but the market structure still needs to be optimized. From the perspective of major indexes, the Hang Seng Index, the Shanghai Composite Index, the CSI 300 and the CSI A50 rose by 4.20%, 2.75%, 1.96% and 1.81% respectively, while the ChiNext and STAR 50 closed down 1.92% and 2.53% respectively. In terms of style, value is stronger than growth, and large-cap stocks are significantly stronger than small-cap stocks.
The financing balance has dropped significantly, and the short-term sharp decline is brewing an opportunity for a rebound:
In the 15 trading days ending January 22, Wind All A fell by 10.36%. Historical data shows that excluding this time, since 2010, Wind All A has had a total of 12 short-term rapid sharp declines, and the median cumulative returns of Wind All A reached 6.3%, 10.6% and 10.7% respectively after 30, 60 and 250 trading days after the sharp fall. In addition, the divergence between financing funds and market trends has also been significantly repaired last week, with the financing balance of rolling 15 trading days falling by more than 50 billion yuan at one point, which is consistent with the short-term bottom of the market since 2018.
Taking history as a mirror, the short-term sharp decline is brewing an opportunity for a rebound
The financing balance plummeted by more than $50 billion, in line with the past short-term bottoms
Source: Wind, (above) Huafu Securities statistics, (bottom) data range 2018.01.01-2024.01.25.
Asian bonds: Real interest rates remain high, and Asian central banks are calling for interest rate cuts this year
Real interest rates remain high, and Asian central banks are calling for interest rate cuts this year:
Against the backdrop of relatively low inflation, China's central bank eased monetary policy further last week in order to facilitate the fall of the currently high real interest rate and inject impetus into investment and consumption. In fact, real policy rates in most countries in Asia have exceeded the average of the previous decade as a result of previous interest rate hikes in overseas developed markets to combat inflation. With the Fed signaling a pivot in December, Asian central banks are expected to start easing monetary policy as early as the second half of this year, which could be positive for Asian bonds.
The Fed's interest rate cut cycle may begin, focusing on the value of Asian bond allocation:
Against the backdrop of the expected start of the Fed's interest rate cut cycle, the expectation that the US dollar may weaken this year is positive for Asian hard currency bonds, foreign exchange and equities. The cooling of inflation in Asia has created the conditions for central banks in the region to ease monetary policy and will provide support for local currency bonds. While credit spreads remain tight, higher yields to maturity could act as a cushion if risks to the growth outlook trigger market volatility. Asian investment grade bonds may remain attractive as growth uncertainty remains.
Real Interest Rates (%): Asian countries are mostly on the high side
Asia Investment Grade Bonds: Tight credit spreads but higher yields to maturity
Source: FactSet, CEIC, J.P. Morgan Asset Management, (top) the last 10-year average covers the period from 2010 to 2019, and the end of 2023 reflects the closing data on December 31, (bottom) the J.P. Morgan Asia Credit Index (JACI) for Asia investment grade bonds for the period 2015-2023.
Overseas: The US GDP growth rate in the fourth quarter was stronger than expected, and the market postponed the forecast for the timing of interest rate cuts
US GDP growth in the fourth quarter was stronger than expected, and the market postponed its forecast for the timing of interest rate cuts:
U.S. GDP growth in the fourth quarter was significantly stronger than expected, reaching 3.3% y/y compared to market expectations of just 2.0%, thanks to strong consumer spending, and the economy for the full year of 2023 will grow by 2.5%, the fastest in two years. Financial markets are pricing in the probability of a rate cut in March has fallen below 50% as new economic data continues to be stronger than expected, but have increased bets on a rate cut at the May meeting.
The European and American economies are showing signs of recovery, pay attention to the Fed's January meeting:
Since the beginning of this year, the main economic data in Europe and the United States have been stronger than market expectations, the economy is showing signs of recovery, the rising prospects of a soft landing in the United States are expected to continue to inject momentum into risk assets such as stocks, and the recent increase in Chinese policies has also boosted the performance of commodities. In view of the fact that the Federal Reserve will announce the decision of its January meeting in the early morning of February 1, Beijing time, major asset classes may trade cautiously in the short term, waiting to find more clues about the timing of interest rate cuts from the latest meeting statement.
Despite the high base, US GDP grew more than expected in the fourth quarter
Recently, the economic prosperity of the euro area has also improved significantly
Source: Wind, (top) data range 2021.03-2023.12, (bottom) data range 2023.01-2024.01.
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