A rumor raided the market, A shares, the reason for the rise was found?

After falling below 3,000 points, the market was worried and originally thought that it would continue to adjust, but on Thursday morning, A-shares suddenly saw a strong rebound and closed at 3,000 points.

Most people believe that the main reason for the sudden rebound in A-shares is that there are rumors in the market that the central bank will buy treasury bonds to expand the balance sheet and that a Chinese version of QE may be introduced, although there is no official confirmation, but it still makes many investors excited.

The central bank's purchase of Treasury bonds can easily make people feel the Fed's balance sheet expansion and US QE.

QE stands for quantitative easing, and since 2008, the Fed has conducted at least four rounds of QE, starting in 2008, 2010, 2012 and 2020.

The so-called quantitative easing means that after there is basically no room for interest rate cuts or RRR cuts, the market is provided with base money by buying medium and long-term treasury bonds.

In this process, the bonds in the market are bought by the central bank, and the central bank's funds enter the market, which is equivalent to printing money to the market.

Therefore, every time QE appears, the stock market, property market and other asset prices will usher in a wave of rise.

Will the Chinese version of QE come?

Unlikely in the short term. There are three ways for the central bank to buy government bonds, one is to buy them in the primary market, that is, from the Ministry of Finance. The People's Bank of China Law stipulates that the People's Bank of China shall not overdraft government finances and shall not directly subscribe to or underwrite treasury bonds and other government bonds. So the central bank buys in the primary market, which is not feasible at the moment.

The second is to purchase bonds (repurchase transactions) through pledges in the secondary market, which is a relatively common practice at present. For example, reverse repo, MLF operation, etc.

The third is to buy or sell treasury bonds through cash transactions in the secondary market. This method of purchase is legally possible, but the central bank has been very cautious about it over the years.

The central bank's bond purchases that the market refers to this Wednesday should be the third type above.

But what I would say is that at this stage, whether the central bank is buying bonds or not, there is no talk of QE. There are two main reasons for this:

First, it is unlikely that you can buy bonds in the primary market no matter how you buy bonds, because it is a legal forbidden area. In general, the main sign of QE is the purchase of Treasury bonds in the primary market.

Second, there is still room for China to cut the RRR and interest rates, and it is not yet time to use QE.

At present, there are three ways for China to print money, one is to reduce the reserve requirement, the second is to put foreign exchange appropriation, and the third is MLF and reverse repo operations. The final effect of these three models will be reflected in the growth rate of broad money M2.

Broad money (M2) is the sum of cash and deposits of enterprises and residents, which is equivalent to the total currency in the market.

As of the end of February this year, China's broad money M2 was close to 300 trillion yuan, with a growth rate of 8.7%, and the growth rate has declined. It can be seen that there is no QE at the moment.

The M2 growth rate is a very important indicator, and when the M2 growth rate is relatively high, the stock market is easy to rebound.