Text | Wu Haishan
Editor丨Lin Weiping
"There are a lot of opportunities for A-shares this year, but it will take some time to show up." Yang Aozheng, chief Chinese market analyst at FXTM, told this publication.
He is confident in the A-share market, mainly due to China's active and prudent monetary policy and capital market reform.
He said that foreign investors will eventually choose markets with good economic conditions and room for appreciation in terms of valuation. From these aspects, A-shares are relatively attractive. As for the timing of the return of A-share valuations, he said that in general, it depends on the macroeconomic conditions and the improvement of the market environment.
Prudent monetary policy
It will save China from repeating the mistakes of Japan
China's GDP grew by 5.3% in the first quarter, and Yang said that the better-than-expected data helped boost market confidence, but it will take time for China's economic growth to recover.
According to his analysis, in terms of the troika of China's economic GDP growth, investment, consumption, and exports, in March, fixed asset investment accelerated year-on-year growth to 4.5%, which is a good figure, but the economy is a cycle, and the cycle takes time. It will take time for the positive impact of fixed investment to be transmitted to consumption and exports, after which these figures will increase significantly. At the same time, the recovery of China's economic growth is also linked to international demand, and the economic situation of China and the United States is relatively good globally, but the current economic situation of other countries is difficult. It is also reasonable that the weakness of external demand will have some impact on exports.
Since the beginning of this year, there have been many voices in the market discussing whether China will follow the path of Japan over the past 30 years. In this regard, Yang Aozheng said that China's monetary policy will save China from repeating the mistakes of Japan.
He analyzed that in the past 30 years, especially in the first 20 years, the monetary policy of the Bank of Japan has been highly unstable, basically following the United States. It wasn't until Abe took office that he promoted Abenomics, began to implement loose monetary policy, and even used negative interest rates to stimulate investment and consumption. Now that Japan has finally ended negative interest rates and returned to inflation, the Japanese stock market has finally ushered in some investment.
"In that sense, what can save China from falling into that situation is China's prudent monetary policy." Yang Aozheng said.
The so-called steadiness is to gradually adjust, explore and grasp the appropriate dimensions so that inflation can reach a better state, and at the same time, economic growth can reach a better situation. In his view, monetary policy is the most fundamental and core factor in the economy, affecting all aspects of the entire economic cycle, including imports and exports, economic growth, industrial exports, borrowing costs, corporate financing, real estate and other fields.
Yang Aozheng is opposed to the current market voice that the LPR is falling too slowly, he believes that if the LPR falls too fast, it is a one-time stimulus measure, which is difficult to sustain, and at the same time, monetary policy should not be used only to achieve a short-term repair of the economy, and China is more in pursuit of long-term and steady recovery. At the same time, as the second largest economy, China's change in interest rate policy will have many knock-on effects. If you make too hasty decisions on interest rate policy, or if you adjust it too quickly, it can easily cause a bubble in one area.
At present, the world's understanding of sound monetary policy is that it can achieve the inflation rate and economic growth to the target of 2%. "At present, the regulation and control of the People's Bank of China is relatively rational, benign and prudent. Basically, the central bank's monetary policy can bring economic growth and inflation back to 2%, and if the regulation is sufficient, the rate cut does not need to be too large. Yang Aozheng said.
At the same time, he stressed that the current environment in China was very different from that of Japan, when the bubble burst, especially when it entered a deflationary environment, the monetary policy of the United States was still very strong, and the interest rate reached more than 10%. The current interest rate in the United States is at 5%, which seems very high, but it is necessary to consider the current state of the US debt, and the higher the interest rate means that the higher the cost of recovering the US debt.
Yang Aozheng believes that the United States will cut interest rates urgently, and the U.S. economy is at risk of a hard landing. He said that based on historical experience, in the past 20 years, the ability to normalize interest rates in the United States has been an emergency rate cut. For example, in 2002~2003, 2008 and 2020, the Federal Reserve suddenly lowered interest rates after they rose to a very high level, and then normalized the two-year and ten-year inverted U.S. Treasury rates. So far, the two-year and ten-year inversion has not ended. Historically, a higher two-year rate than a 10-year rate is essentially a recession, a situation known as a death cross.
The interest rate cut will not change this situation, but it will only drag the cross from top to bottom, but the cross itself still exists, "that is, the market still believes that the short-term economy is better than the long-term economy, and the short-term interest rate is better than the long-term interest rate." He cited the situation during the 1981-1984 oil crisis and suggested that the United States may now be facing a similar scenario, with the risk of a recession hard landing.
If there is really no way for the U.S. economy to have a soft landing in the future, what is the relevance to China's monetary policy?
Yang Aozheng said that the U.S. economy and China's monetary policy are closely related, assuming that the U.S. economy has no way to land softly, and interest rates cannot be lowered, but maintaining this state for a long time is actually very stressful for the U.S. government. "From this perspective, even if China's bond assets remain around 2%, when US interest rates slowly fall, its advantage will still reappear."
At the same time, he believes that the current exchange rate of the renminbi may not be good for consumption abroad, but it may be conducive to stimulating domestic consumption and domestic tourism. With more and more domestic tourism and consumption, capital can be circulated domestically, contributing to economic growth.
At the same time, after the RMB interest rate broke 7, it has been maintained in the range of 7.1~7.3. Yang Aozheng believes: "Even if it falls below 7.3 and 7.4 in the future, there will be no overreaction, because on the whole, the direction of the entire monetary policy of the People's Bank of China is stable and in line with the current economic environment." ”
A-shares are relatively attractive
CSI 300 enterprises may take the lead in benefiting from the new "National Nine Articles"
At the same time, he spoke highly of China's reforms in the capital market.
On April 12, the State Council issued the "Several Opinions on Strengthening Supervision and Preventing Risks and Promoting the High-quality Development of the Capital Market", which involves nine aspects, including raising the listing threshold, increasing supervision, promoting medium and long-term capital entry into the market, and deepening reform and opening up.
Yang Aozheng said that China is not the first country to do these capital structure optimization, using average price-to-book ratio (PB), price-to-earnings ratio (PE), return on equity (ROE) and other strategies to stimulate the stock market, Japan is a good example. As a result of this optimization, the Nikkei 225 Index has skyrocketed over the past year. However, he stressed that these are the results of the efforts of enterprises, and all retail investors should not invest in them as soon as the policy comes out. The correct order is to help enterprises improve their capital structure and financial status after the emergence of policies, so that enterprises can pay more attention to the interests of small shareholders, pay attention to dividends, pay attention to ROE, and pay attention to R&D investment, so as to bring real benefits to small shareholders and attract those small shareholders to continue to invest. "Before the Japanese stock broke through 30,000 points, it floated back and forth in that range for a long time. For a long time, Japan has only used monetary policy to regulate and control, and has not carried out corporate reforms, and it is not until 2023 that reforms will begin. A-shares have been accompanied by such reforms at the beginning, and they will gradually improve. ”
He believes that the impact of the new "National Nine Articles" on the market in the future depends on two factors: the first is macro factors, especially monetary policy, because enterprises to achieve the above financial goals, including ROE goals, PB goals, and share repurchase goals, financing reinvestment is indispensable. The second is when the business will reach those goals.
As for the market's reaction to this, Yang Aozheng believes that the CSI 300 will be affected first, because the CSI 300 is large, and the proportion of retail investors should be relatively small. Institutional investments and fund managers' investments avoid the rise and fall caused by small-scale speculation by retail investors. Therefore, if the CSI 300 enterprises carry out reforms in accordance with the new "National Nine Articles", they can attract long-term inflows of head capital and foreign capital. The question is when the policy goals will be achieved, and whether they will be sustained for a long time after they are achieved. He stressed that in addition to dividends, share buybacks are also a very important factor.
According to his observation, the stock markets in the Asia-Pacific region, including Japan and South Korea, have seen significant net outflows of funds after January and February this year, and they have also generally fallen, and the decline and intensity are more obvious than those of A-shares. "International funds must first look at the valuation, look at the rate of return, and finally decide which direction the funds should be invested in. From these perspectives, A-shares are relatively attractive, and of course they will consider the risks as well as the opportunities. China's 'national team' is also a strong and long-term support. ”
(This article was published in the May 18 issue of Securities Market Weekly, with the original title "Prudent Monetary Policy Is More Conducive to China's Development, and CSI 300 Enterprises May Be the First to Benefit from the New "National Nine Measures".) The individual stocks mentioned in the article are only for analysis and do not make investment advice. ）