When it comes to what factors affect the trend of A-shares, what comes to mind? Economic situation, or is it a national policy? Behind all this, the term interest rate differential between China and the United States is frequently mentioned, how big is its influence? Is the current trend of the interest rate differential between China and the United States indicative of the direction of A-shares?
First of all, let's talk about what is the interest rate differential between China and the United States, and the popular understanding is: the difference between the yield of Chinese government bonds and the yield of US Treasury bonds, here the yield of 10-year Treasury bonds is generally used. However, the general environment and the degree of financial openness of the two countries are different, and it is not normal for the yields of government bonds to be different. Although this is the case, there is usually an equilibrium range, because from the perspective of global funds, when the difference between the interest rate of mainland government bonds and the interest rate of US bonds is larger, it means that the funds will receive more interest in China, and the stronger the willingness of the funds to stay in the mainland; Otherwise, interest rate differentials are inverted, and the willingness of funds to flow back to the United States is stronger.
So what is the general level of interest rate differentials between China and the United States? Before 2010, because the degree of openness of the domestic financial market was still relatively low, and the interest rates between China and the United States lacked linkage, the fluctuation of interest rate differentials was relatively large, and there were three obvious interest rate differential inversions. Since 2010, the degree of openness of the mainland's financial market has been continuously improved, the linkage between Chinese and US interest rates has been significantly enhanced, and the interest rate differential between China and the United States has maintained a positive interest rate differential for a long time, and the difference is more than 1% most of the time. Until April 2022, the interest rate differential between China and the United States began to invert! The reason is not complicated, at that time, the United States was facing serious inflation, the Federal Reserve started to raise interest rates in March 22, our domestic monetary environment was relatively loose, and the dislocation of monetary policy between China and the United States contributed to the gradual narrowing of the interest rate gap between China and the United States, and finally inverted.
Source: Wind, CICC Research
Source: Wind, CICC Research
The inversion will make cross-border funds flow back to the United States stronger and put pressure on RMB assets, and A-shares are also RMB assets, so they will naturally be affected to a certain extent, but to what extent will this impact be?
As mentioned earlier, the linkage between Chinese and US interest rates has only increased significantly in recent years, let's compare the correlation between the CSI 300 and the Sino-US interest rate differential trend from 2017 to 2022, when the current round of interest rate differential inversion was high, and the correlation coefficient was 0.6.
From the trend comparison chart, it can also be found that the interest rate differential between China and the United States represented by the blue line and the CSI 300 that seems to be leading the red line are further analyzed for lag correlation, and sure enough, the lag is 40 days, the correlation is increased to 0.8, and the lag of 83 days is the highest. Combined with the trend comparison chart of the CSI 300 with a lag of 83 days, the interest rate differential between China and the United States is 2 to 4 months ahead of the CSI 300 index.
Of course, the above is only past data, which has reference value, but the market may not be simply copied. Back to the present, this round of Sino-US interest rate differentials bottomed out twice on April 25 this year, and is currently continuing to rise, while Canada and Europe have entered a cycle of interest rate cuts, although the Federal Reserve has repeatedly stated that the possibility of interest rate cuts within the year will be smaller, and even mentioned that interest rate cuts will not be considered, but a new round of tides is coming from a global perspective, even the Federal Reserve will eventually need to follow the direction of the tide.
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