Yang Boguang: "Golden Double Festival" is coming, holding coins or holding shares for the holiday?
Hot spot: Last week, the US stock S&P 500 accelerated its decline, and the Shanghai Composite Index accelerated its rebound in the last trading day, coinciding with the Mid-Autumn Festival National Day "Golden Festival" approaching, is the market all the way up? Should investors hold coins or shares?
Unscramble:
The Shanghai Composite Index accelerated its rally on Friday, and the continuity of the market should revolve around economic fundamentals in the future. From the economic fundamentals, after the central bank lowered the reserve requirement to release long-term liquidity, the reverse repurchase net investment last week was 552 billion yuan, and the overnight reverse repurchase rate fell from 2% to 1.7%, indicating that liquidity is loose and loose monetary policy supports economic growth. Economic data in August ushered in an improvement, of which the year-on-year growth rate of social zero rose, consumer demand improved, and the expansion of industrial added value showed that industrial production accelerated, and domestic demand momentum is driving the synchronous development of production. The issuance of new special bonds is nearing completion, and the landing projects support the continuation of the high growth rate of infrastructure investment demand. In terms of RMB exchange rate, in the face of a strong US dollar cycle, the CFETS RMB exchange rate index has not fallen but risen, and has appreciated relative to non-US currencies, demonstrating the resilience of RMB. At the same time, the second quarter monetary policy report and the global foreign exchange market self-discipline mechanism special meeting proposed that "resolutely guard against the risk of exchange rate overshoot" means that the central bank actively maintains the RMB exchange rate. Therefore, from the perspective of the large economic cycle, the continuous "support" of policies and the steady recovery of economic fundamentals will enhance the value of Chinese assets. At the same time, the volatility of the RMB exchange rate is stable, which is expected to guide the net inflow of foreign capital.
Source: Wind
Therefore, from a medium- and long-term perspective, the value of RMB assets increases simultaneously with the gradual repair of economic fundamentals, and the valuation is low to increase the cost performance of allocation. In the face of the current dislocation of the Chinese and foreign economic cycles, the future internal easing, external economic slowdown and even recession are more Chinese and foreign assets, reflecting the better allocation significance of RMB assets. In this way, in the face of short-term market fluctuations, in addition to focusing on the resonance of the medium and long-term economic cycle cycle and asset price correction, emotional stability, reviewing positions and remaining flexible will be the only way to invest at this time.
Hot spot: In the face of the recovery of the international oil price center, Russia imposed a temporary ban on gasoline and diesel exports, combined with the evolution of the global refinery pattern, will Chinese refineries usher in investment opportunities?
Unscramble:
Following the reduction of crude oil production between Russia and Saudi Arabia, Russia imposed a temporary ban on gasoline and diesel exports. Since diesel is used in agriculture, shipping trade and other fields, agricultural production in southern Russia is greatly affected by the fluctuation of fuel prices, and the rise in diesel prices has an impact on agricultural prices and harvests, becoming a potential disturbance factor for inflation in Russia. As the world's main supplier of diesel, diesel exports reach millions of barrels per day, and the reduction in diesel supply will push up external diesel prices. More importantly, it will drive diesel capacity substitution in other regions.
In terms of global refining capacity, the current refining capacity is gradually shifting from Europe and the United States to the Asia-Pacific region. Since 1980, the world's new refining capacity has mainly come from the Asia-Pacific region, and the proportion of refining capacity in the Asia-Pacific region has increased by 10% in the past decade. Especially from 2000 to 2021, the proportion of refining energy in the United States, Europe and China changed by -2%, -8% and +10% respectively. Due to the impact of decarbonization factors in Europe and the United States, or accelerate the layout of renewable energy, and the willingness of refineries of traditional energy refineries to invest is not strong, capacity expansion is limited. In contrast, China's crude oil imports have risen year-on-year since the beginning of this year, refinery capacity has continued to grow, coupled with the third batch of refined oil exports up 33% month-on-month, China's refining capacity advantage is expected to promote refined oil exports, oil transportation or become a research category.
Source: Wind
In general, Russia's temporary ban to meet domestic fuel demand heralds an upturn in the economy. The contraction of global diesel supply is expected to drive the capacity substitution effect of other refined oil exporters, especially the global proportion of China's refining capacity is rising year by year, and the production capacity advantage is expected to cooperate with export policies, which is expected to develop refined oil exports and help the price of refined oil shipping rise. In addition, the spread between ICE diesel and WTI crude oil has increased, refinery revenue and cost space have widened, and the resonance effect of profit and EPS deserves investors' attention.
Hot spot: Bank of Japan's interest rate remains unchanged, but USDJPY is gradually approaching last year's high, and Japan's CPI performance in August exceeded expectations, how will the BOJ respond in the future? How will monetary policy be interpreted?
Unscramble:
The central bank's interest rate remained negative in September, continuing to boost the economy with an accommodative stance. In terms of inflation, Japan's CPI grew by 3.3% year-on-year in August, above the historical average, with food items and gasoline prices as the main drivers. Prices of processed foods and snacks rose by 8.6% year-on-year. Gasoline prices rose 7.5% year-on-year due to the reduction of oil retailer subsidies by the Japanese government and the rise in external oil prices. As a resource-scarce country, WTI crude oil rose by 7% in September compared with August, and the yen's depreciation against the US dollar by 1.88%, and the rise in raw material prices is easy to import internally, potentially increasing the price of energy-related projects.
In addition, excluding energy and fresh food, inflation growth remained at 4.3%, reflecting strong domestic demand. Looking ahead, from the output gap, according to Bank of Japan data, from 2020Q2 to 2023Q1, the output gap gradually rebounded to -0.34%, and the actual output and potential output gradually converged, reflecting that the total social demand is constantly improving, and the momentum of economic repair still exists. It is worth noting that the labor input gap has turned positive, and the actual number of labor used has exceeded the number of planned labor used, indicating that the economic improvement has driven labor demand, coupled with Japan's low unemployment rate, the labor market tends to be tight and balanced. In the face of negative real wage growth for 16 consecutive months, the demand for future workers to negotiate wages will increase. From the year-on-year growth rate of retail sales in July, the spiral effect of wages and inflation has heated up, and the core CPI index, which excludes energy, is likely to rise.
Source: Bank of Japan official website
Therefore, although the Bank of Japan keeps interest rates unchanged this time, Japan's inflationary pressures will rise in the face of weak exchange rates and strong commodity-led imported inflation, as well as the repair of Japan's domestic output gap, and the spiral effect of wage growth and internal inflation heating up. If it deals with a weak yen and inflation, sooner or later the Bank of Japan's monetary policy will shift. Imagine that the Bank of Japan buys a large number of Japanese bonds during QE to release liquidity, and if interest rate policy shifts, the affected Japanese bond prices will cause the BOJ balance sheet to lose money. As far as the market is concerned, in the face of rising expectations, Japanese bond yields are rising simultaneously, and the short-term continuation of the yen, when the decline to rise occurs, will become the next focus of global liquidity.
Hot spot: In September, the Bank of England and the US Federal Reserve announced a pause in interest rate hikes, but the Fed raised its economic growth forecast for 2023 and the federal funds rate in 2024, respectively. How will this affect subsequent investment ideas?
Unscramble:
The suspension of interest rate hikes at the September FOMC meeting was in line with expectations, the federal funds rate level in 2023 was 5.6% on the dot plot, and the economic forecast was sharply raised to 2.1% in 2023, indicating that the resilience of economic demand will support the Fed to continue to raise interest rates. Core inflation in the United States continues to fall, employment tends to balance supply and demand, and the inhibitory effect of monetary policy continues to be reflected. In particular, the CRB commodity price index climbed to the level of November 2022, the year-on-year growth rate of downstream retail sales in August was higher than that in July, the resilience of downstream demand is conducive to the downward transmission of raw material prices, the rate of inflation decline will slow down, and the tightening time will be prolonged. In addition, Powell did not mention the content of the interest rate cut, and raised the federal funds rate by 50bp in 2024, which means that the timing of the interest rate cut in 2024 is delayed and narrowed, and the tightening cycle is not over, preventing the change in market expectations from driving economic momentum up, which is not conducive to inflation falling back to the target level of 2%. It reflects that the FOMC meeting sends a hawkish signal, and the maintenance time of anti-inflation, high interest rates and a strong dollar will be extended simultaneously.
The recovery in commodity prices and the impact of a strong dollar on non-resource economies have expanded. Taking South Korea as an example, in the face of the combined effect of rising international commodity prices and weak won and rising import costs and imported inflationary pressure, the year-on-year growth rate of South Korean CPI commodities in August rose sharply by 2.66% compared with the previous month, and the risk of reinflation of Korean goods increased. However, since the beginning of this year, South Korea's exports have maintained negative year-on-year growth, weak external demand and economic pressure still exist, and the possibility of re-raising interest rates in the future is low, and the benchmark interest rate level of 3.5% will be maintained in the future.
Therefore, from the United Kingdom, Canada, the Federal Reserve have announced a pause in interest rate hikes, but the FOMC meeting continues to send hawkish signals, high interest rates and the continuation of a strong dollar environment. The rise in commodities, rising commodity reinflation and economic pressure in non-resource economies mean that the global interest rate level is gradually moving from "higher interest rates" to "longer time". At this time, coupled with the accelerated repair of the inversion of U.S. Treasury yields, the rise of the long-end risk-free yield in the 10-year will bring pressure to growth assets in U.S. stocks, which should be noted.
This article only records the views and experiences of Yang Boguang (license number: S0340619060008), does not represent the position of the institution he works for, and may not be reproduced in any form by anyone without permission. The views and statements published do not constitute investment advice to any person or any organization and should not be used as a substitute for investors' independent judgment. Investment is risky and you need to be cautious when entering the market.