Rate cuts, or they're ready to go!

Xiaobai reads finance and economics

2024-05-24 10:54Published in Guangdong

First, a new round of deposit interest rate decline may be coming soon!

On May 23, the National Development and Reform Commission, the Central Bank and other four departments issued the "Notice on Doing a Good Job in the Key Work of Cost Reduction in 2024", which mentioned:

We will continue to give full play to the effectiveness of the reform of the loan prime rate (LPR) and the important role of the market-oriented adjustment mechanism of the deposit interest rate, and promote the steady and moderate decline of the comprehensive financing cost of the society on the basis of maintaining the basic stability of the net interest margin of commercial banks.

A short sentence with a small number of words and a very large amount of information.

1. The key work of cost reduction in 2024 includes promoting the steady and moderate decline of social comprehensive financing costs, which means that social financing costs will be reduced this year. The social financing cost mainly refers to the bank loan interest rate, to be precise, the LPR, which is regarded as the benchmark interest rate for loans, and when the LPR is lowered, the bank loan interest rate will inevitably be lowered.

2. There is a prerequisite for the reduction of loan interest rates, that is, to keep the net interest margin of commercial banks basically stable. In the fourth quarter of 2023, the net interest margin of commercial banks will be 1.69%, which is not only the lowest in history, but also below the warning line of 1.8%, and the net interest margin of banks needs to be stabilized.

The lower the deposit interest rate and the higher the loan interest rate, the larger the bank's net interest margin. Conversely, the higher the deposit rate, the lower the loan interest rate, and the smaller the bank's net interest margin.

At present, on the one hand, we want to lower the lending rate, and on the other hand, we want to maintain the net interest margin of the banks, and the inevitable result is that the deposit interest rate must be lowered first, or even by a higher rate than the loan interest rate.

It can be seen that the decline in deposit rates will be one of the main tones in 2024.    

According to incomplete statistics from the Financial Associated Press, more than 20 banks have successively removed high-interest deposits such as smart notice deposits during the year, and about 11 banks have followed up since May alone.

Recently, an article published by the Shanghai Securities News mentioned that in combination with the timing factors and the previous reduction of deposit interest rates, the reduction of deposit interest rates by major state-owned banks generally occurs in May and September each year. A new round of deposit rate cuts is coming.

All kinds of signs show that a new round of deposit interest rate decline may be coming soon!

Deposit rates continue to fall, which has two major implications:

1. The rate of return on fixed-income wealth management represented by bank deposits is getting lower and lower, deposits will more or less move, and some funds may turn to the real economy, stock market, property market and other markets, and the stock market is one of the beneficiaries.

2. The deposit interest rate is getting lower and lower, and the funds will turn to the concept of high dividend yield, especially state-owned enterprises and central enterprises with very high dividend yields. The reason is very simple, at present, the 1-year deposit interest rate of large banks such as China Agricultural Industry and Construction is about 1.45% (the next is likely to be lower), but as of May 20 this year, the average dividend yield of the Shanghai State-owned Enterprise Dividend Index in the past 12 months is 5.64%, and the income is stable.

For example, the dividend state-owned enterprise ETF (510720), which is based on the SSE State-owned Enterprise Dividend Index, has recently attracted wide attention from the market, and its main feature is to screen high-dividend stocks and highlight the dividend value.

Another special point of the dividend state-owned enterprise ETF (510720) is that it can pay dividends up to 12 times in 1 year, and it is expected to pay dividends every month. The most recent dividend was paid in May, with a record date of May 27 and a cash dividend payment date of May 31.

Second, the deposit rate is falling, and stocks with high dividend yields may brew new opportunities

The Shanghai Composite Index fell 1.33% on Thursday, the largest decline in recent times, and also corrected in early trading on Friday. First, because A-shares have rebounded from more than 2,600 points to the present, they have accumulated too many hedging and profit-taking orders, and they are facing great pressure every time they take a step forward. The second reason is that the current mentality of investors is still conservative.

On the one hand, depositors' enthusiasm for depositing in banks has decreased significantly after the continuous decline in deposit rates. On the other hand, the risk of ordinary investors directly participating in the stock market is too high, and they are more focused on the central state-owned enterprise sector with low volatility and high dividend yield, because they can be attacked and defended, which will inevitably lead to further price increases.    

It can be seen that under the background of the continuous decline in deposit interest rates, the yield of fixed-income wealth management such as bank wealth management, money market funds, and short-term bonds is constantly decreasing, and the stock market is one of the beneficiaries, especially the central state-owned enterprise sector with high dividend yield is expected to become the market's sweetheart!    

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