Yang Boguang: The Shanghai Composite Index fell below 3,000 points, how to lay it out?

Yang Boguang

2024-06-24 09:33Published in Guangdong

Hot Spots: The central bank said that M1 may be restructured in the future, and the credit data has been abnormal for two consecutive months, which has caused heated discussions in the market, how should investors think about the subsequent monetary impact? In terms of market performance, the market continued to diverge last week, and the trading volume continued to shrink, how do you see the relationship between market volume and monetary policy?

Unscramble:

According to the central bank, M1 fell by 4.2% year-on-year in May, marking the second consecutive month of negative growth. The reason behind this abnormal data may be due to the fact that the central bank has reduced the phenomenon of commercial banks collecting deposits in the form of manual interest supplements, reducing the arbitrage and idling space of funds. The central bank's proactive and strong supervision will help reduce the cost of bank liabilities, release the lending capacity, improve the effectiveness of the interest rate market-oriented mechanism, and reflect the efficiency and precision of monetary policy.

Source: Wind

With the continuous progress of China's economic development, monetary policy or related statistical methods have been gradually adjusted to better play the central bank's regulatory function on the economy, especially the monetary statistics are easy to interpret the macroeconomy intuitively. Looking back, the statistical caliber of central bank money has been revised several times. In 2018, due to the T+0 redemption attribute and high liquidity to support the rapid expansion of the scale of money market funds, the central bank announced the adjustment of M2 caliber to include money market funds in its statistical scope. At the end of 2022, the People's Bank of China (PBOC) actively promoted the digital yuan and included it in the M0 statistical standard. We look at M1 itself, which reflects cash or cash and other things that residents can use at any time, and is a representative of real purchasing power. At present, the statistical scope of M1 only includes the sum of M0 and unit demand deposits, which can be traced back to 30 years ago, when residents' deposits were deposited in banks and then cashed out at bank counters with passbooks, and their realizable speed did not meet the definition of M1. At present, bank cards and electronic payment methods are becoming more and more common, which has greatly increased the realization speed of residents' demand deposits and cash management wealth management products, so it is reasonable for residents' demand deposits to be included in the M1 statistical scope. In addition, in the past, when real estate played a key role in supporting China's economy, the transition to high-quality economic development, the appropriate expansion of the statistical scope of M1 can effectively reduce the impact of the slowdown in the collection of real estate enterprises on unit demand deposits, thereby changing the reading performance of M1 that continues to weaken. It can be seen that the further expansion of the M1 statistical scope in the future is the result of conforming to the trend of China's economic development.

When the statistical scope of M1 is reconstructed, the demand deposits of residents that originally belonged to the statistical scope of M2 increase to the statistical range of M1, in other words, the overall M2 does not change much, and M1 becomes larger, which will form a supporting force for the convergence of the scissors difference between the two, and the possibility of bottoming out and rebounding in the future scissors difference reading will increase. It is worth reminding that the M1 caliber reconstruction is a passive treatment, and in fact, the trend of slower growth of narrow money still exists, which is related to the current prepayment phenomenon. With the downward shift of market interest rates, the high borrowing cost in the early stage will be in stark contrast to the current low return on investment, and investors with spare money tend to repay their loans early and actively reduce the actual debt pressure. In addition, residents' lack of confidence in the future has led to a decline in risk tolerance, and even some investors choose to sell wealth management products and stocks for early repayment, which is easy to affect the capital market capital.

Looking ahead, the central bank's monetary policy is still expected to remain moderately accommodative, drawing on the characteristics of the Western monetary framework to gradually develop into international standards, including the development of the treasury yield curve and new price-based monetary instruments. In addition to observing the changes in CPI as a judgment of medium and long-term market capital changes, the linkage between A-shares and peripheral market sectors, valuation and dividend yield comparison and other standard globalization research logic ideas have gradually followed up between diffusion and investment choices.

Hot spots: The Bank of England keeps interest rates unchanged, and the nearby Swiss National Bank has cut interest rates twice, why is the pace of interest rate cuts by the Bank of England "half a beat"? In addition, UK and European stocks have been correcting for many days since mid-May, can they bounce back in the future? What does this mean for investors?

Unscramble:

The Bank of England's stay unchanged in May is related to the good economic performance of the UK since the start of the year. In Q1 this year, the UK's GDP increased by 0.63% month-on-month, ending two consecutive quarters of negative growth, with the high prosperity of the service industry as the main driving force. According to Wind, the UK service PMI has stepped into the expansion range for 7 consecutive months, which is an endogenous economic momentum. Compared to Switzerland, which is a typical export-oriented economy, a strong Swiss franc will not be conducive to the return of funds to exporters. Therefore, a weak currency is a key factor in avoiding a "hard landing" for the Swiss economy, which has a higher priority than the UK in cutting interest rates.

It is worth noting that as the UK economy remains resilient, it may cause secondary inflation. First, structural contradictions in British employment still exist. Due to factors such as poor health and higher unemployment benefits, the proportion of British residents who do not work and are unwilling to find a job is increasing, and the shortage of labor in the UK has not improved, supporting the wage level in the UK to remain high and fluctuate, for example, the average weekly wage of wholesale, retail, hotel and catering increased by 5.15% year-on-year in April, which has accelerated for two consecutive months. Second, according to Wind, the CPI of the British entertainment, education and other service industries increased by 3.90% and 4.50% year-on-year respectively in May, much higher than the overall CPI of 2.00%, and the service inflation pressure is still high, especially in the first half of this year, the impact of the high base CPI will gradually subside. In addition, the British Prime Minister election will be held on July 4, and the British government's focus and direction of economic growth and people's livelihood after the election are uncertain, so August may be the time point for the Bank of England to cut interest rates for the first time, but further interest rate cuts are likely not to follow the SNB model.

Source: Wind

Back in the market, the European and British stock markets rose all the way in the first half of the year, which has reflected the central bank's expectation of interest rate cuts to a certain extent. Now that interest rate cuts are gradually landing, the focus of funds will shift to the continuous improvement of the economic market and the improvement of corporate earnings. It may be difficult for the center of the European and British stock market to move up again, and it is necessary to think and judge the fundamentals of enterprises in terms of economic development characteristics, global industrial policies and exchange rate trends. In particular, in a strong dollar environment, US dollar assets are more attractive to funds, which will be a source of pressure on the capital side of other developed markets, and it is advisable to cross-contrast with the liquidity released by interest rate cuts.

Hot spots: U.S. stocks continue to rise, the market value of the "Big Three" (Nvidia, Microsoft, Apple) continues to hit new highs, at this time Goldman Sachs recommends buying gold as a hedge, corresponding to A-shares, the Shanghai Composite Index fell below 3,000 points last Friday, where should the market go?

Unscramble:

Last week, market sentiment fell to a trough again, and the Shanghai Composite Index failed to defend the 3,000-point mark, with the Shanghai Composite Index, the Shenzhen Component Index and the ChiNext Index closing down 1.14%, 2.03% and 1.98% respectively. In terms of style, the funds are quite different from the large-cap blue-chip sectors represented by the SSE 50, and the performance has declined, while the small and medium-sized market capitalization sectors have shown a weak rebound due to the over-fall in the early stage. There is a big difference between the trends of the sectors, with the overseas technology market continuing to map to A-shares, and electronics and communication sectors leading the two markets.

That said, investors should be aware that the uncertainty of the continued technology market has increased. According to Wind, U.S. retail sales in May increased by only 0.09% month-on-month, far less than the expected value of 0.30%, which corresponds to the weak performance of some mass consumer sectors in the market, such as McDonald's and Disney. In addition, the prosperity of the U.S. construction industry has slowed down. The number of new starts in the United States in May hit a new low since June 2020, and the sales of real estate-related furniture and home decoration stores, building materials and garden equipment and materials stores all weakened, falling by 1.06% and 0.79% month-on-month, respectively. The confidence and construction start of the construction industry indicate that the U.S. real estate market has once again entered a marginal weakening stage from the stabilization at the beginning of the year. Overall, from the weakening of manufacturing orders in the early stage to the weakening of retail sales and real estate at present, more data indicates the risk of a "hard landing" for the U.S. economy. Therefore, while the sentiment of funds for interest rate cuts increases, the increased attractiveness of safe-haven assets may hit the liquidity and confidence of the technology sector, especially the CEO of Nvidia, a representative AI company, has gradually reduced his holdings. According to Wind, since the Dragon Boat Festival, the demand for safe-haven assets such as US dollars, gold, and US bonds has soared, and the volatility of the US stock technology sector has increased in the future, with a high probability of transitioning from rising to differentiation.

Source: Wind

On the whole, the signal of a "hard landing" of the U.S. real economy has strengthened, and the catalyst for the Fed to cut interest rates as desired in the next stage may be the beginning of the turning of the capital market trend and dragging down the wealth of residents. Therefore, at present, the resonance market of gold and the Nasdaq has continued to weaken, and the linkage has slowed down. Corresponding to A-shares, the risk appetite of domestic and foreign funds has declined, and the allocation of the Shanghai Composite Index in the MSCI Emerging Markets Index has heated up. Finally, if you are interested in the follow-up section interpretation, you may wish to pay more attention to the update of the "Chief Foresight" column.

This article only records the views and experiences of Yang Boguang (license number: S0340619060008), and does not represent the position of the institution he works for, and may not be reproduced in any form without permission. The views and statements published do not constitute investment advice to any person or any organization and should not be relied upon as a substitute for investors' own independent judgment. Investment is risky, and you need to be cautious when entering the market.

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