Original title: China is temporarily a safe haven for funds, need to be wary of global recession risks
The risk is that Chinese investors may ignore the intensity of the outbreak of overseas epidemics, and the risk of a global recession may weigh on Chinese corporate profits and the economy.
The global spread of the new crown pneumonia epidemic is still continuing. Given its high degree of uncertainty, and the awareness and measures of prevention and control in the United States and other regions are still weak, disturbances in the global economy and financial markets will continue. US stocks will still be difficult to repair after the plunge.
Turning to China, the epidemic is being effectively controlled. From February 20th to March 10th, US stocks plunged by more than 15%, while A shares fell by only 3%. In order to curb the spread of the virus, the strict prevention and control measures adopted by China are currently unattainable overseas, and this will inevitably affect the economy, especially in the second quarter. How should we view China's "safe haven" status?
Zhao Wenli, the chief Hong Kong stock strategist of CCB International, told First Financial News that with the further expansion of the Sino-US interest rate spread and China has effectively controlled the epidemic, the economy is expected to take the lead in stabilizing. Chinese assets may become a safe haven for global funding in this round. Ground. However, if the global economy is in recession or an economic crisis occurs, it will be more difficult for China and emerging markets to survive. China is expected to stand out in the long run, but only if its economic restructuring and reform are successfully completed and a new round of dividends is released. At present, the bond market is highly deterministic and benefits from interest spreads, stocks will still have more uncertainty.
Miao Zimei, co-head of Asia-Pacific stocks and chief investment director of China at Robeco, told reporters that the epidemic is the main driving force for differences between China and the United States and other markets. The market trend is highly correlated with the development of the epidemic. China's prevention and control measures are timely, but the risk is that investors may ignore the intensity of the outbreak of overseas epidemics, and the risk of a global recession may weigh on Chinese corporate profits and the economy.
The overseas epidemic worsens, and the market will continue to fluctuate
To cope with potential economic shocks, the Bank of England cut interest rates by 50 basis points (bp) to 0.25% on Wednesday after the Federal Reserve cut interest rates. All sectors are expected to continue to take action on the 12th and 19th.
"The past two weeks have been really difficult." This is the voice of a crowd of Wall Street people. Recently, the turns of risk and hedging assets have explained the high degree of uncertainty in the global market in recent days.
And the collapse of a series of dominoes can not help but make the market feel as if the crisis of 2008 repeat itself.
Wall Street's star fund manager and Fred Alger's executive vice president of asset management, Amy Y. Zhang, told CBN reporters that although the financial crisis is not yet over, the global "concussion city" may remain for some time. "The U.S. economy (employment, consumption) is okay at least for the time being, and in the long run, low interest rates are good for growth stocks. The reason why the US stocks plummeted and even reached a level of meltdown was the main reason for the plunge in oil prices, and all sectors The slump is tied to expectations of high-yield debt or pressure. "
In addition, awareness of epidemic prevention and control overseas is still weak. She specifically mentioned that Biogen, a large US-based pharmaceutical company with a market value of $ 55.3 billion, held an annual strategy meeting in downtown Boston from February 26-27, with 175 participants, and 4 participants confirmed the infection. Coronavirus pneumonia. According to reports, many people shook hands with each other and met in close proximity at the meeting. After the meeting, many people had cold symptoms and were diagnosed with the flu. The company has notified all participants to work from home before March 16. This has also led to the company of the people attending the company meeting to consider the "home office" option. Such cases are not unique in the United States.
At the same time, another unfavorable factor is that during the outbreak of SARS and H1N1, U.S. stocks were at low levels, and before the outbreak, U.S. stocks already showed signs of foaming. "The stock is already at the end of the cycle, and there is also a need for correction itself. In addition, passive investment such as ETFs have continued to expand in the past few years. In 2004, the size of ETFs was about 33.8 billion U.S. dollars, and in 2018 they were expanded 16 times. It's not price discovery. There is a fall-off effect when the market plummets. "Huang Xi, chief investment officer of Persistent Asset Management, told First Financial reporter.
He also said that two weeks ago, U.S. stocks suffered an epic sell-off (over 10%). That week, the redemption of ETFs in the United States was as high as US $ 17 billion, and the global total was US $ 20 billion. The closing of the risk parity strategy and the CTA strategy has the effect of increasing the decline. If the sell-off cannot be stopped, volatility may strike again.
China temporarily becomes a safe haven, warns of global recession
Objectively speaking, the situation in China is relatively controllable compared to other countries that are still in the epidemic.
At 00:00 on March 10th, China's 31 provinces (autonomous regions and municipalities) and the Xinjiang Production and Construction Corps reported 24 new confirmed cases, 22 new deaths (both Hubei), and 31 new suspected cases.
As of now, compared with the 15% decline in U.S. stocks since February 20, A shares have fallen by only 3%, and the yuan has appreciated by nearly 2% against the US dollar. Market participants call the renminbi the "world's most disease-resistant currency". One. At the same time, the spread between China and the United States once expanded to 200bp, and overseas funds also continued to flow into the Chinese bond market.
In response to the current situation, Lu Ting, chief economist of Nomura China, told reporters that domestic mood has recently switched between extreme pessimism and extreme optimism. Earlier, pessimists believed that the epidemic would accelerate the de-globalization and accelerate the decoupling of Chinese and foreign industrial chains. However, at present, the global economy is highly integrated, and China, as a major manufacturing country, is vital to the world. .
However, he said, "Extremely optimistic mood has recently emerged that China's epidemic prevention and control is well done and the world is still in a state of turmoil. Therefore, various circles believe that China will continue to be a safe haven."
Lu Ting believes that it is indeed necessary to acknowledge that China has achieved great results in the short term, but it must not underestimate the follow-up risks, especially the economic impact of the postponement of resumption of work. More importantly, we must attach importance to overseas import risks and the risks of global economic slowdown or even recession. Nomura predicts that China ’s GDP growth rate may be zero in the first quarter and catch up in the next few quarters. At present, the government needs to take certain countercyclical measures, such as subsidizing affected enterprises and investing in effective infrastructure.
Miao Zimei told reporters, "China has taken decisive prevention and control measures to curb the spread of the epidemic in a timely manner. Confidence is particularly important for the capital market. China has previously had many new funds issued, financing has also started to rise, and the risk of bubbles may rise, but good Regulators have restricted the issuance speed and scale of new funds, and the recent strength of the renminbi has also made it a safe-haven asset. "
But she reminded that "the risk is that Chinese investors seem to underestimate the explosive growth of overseas epidemics. When they realize that there may be fluctuations in the market. The epidemic has become a global epidemic and we are facing a global recession In the case of the earnings season, the downward adjustment of earnings is inevitable, and the consumer and service sectors may be affected. "
Previously, Goldman Sachs cut the global economic growth rate by 1% to 2% in 2020, and lowered the US's economic growth rate to 1.3% in 2020. At the beginning of this year, the forecast was 2.3%; the first quarter and second quarter of the euro zone were dragged down by the economy or 0.3 And 0.6%.
More critically, the global central bank that rescued the world from the previous crisis is also facing a depletion of policy space. Zhao Wenli told reporters that the market has fully expected the Fed to continue to cut interest rates and ammunition is about to run out. No matter whether the Fed cuts interest rates on the 19th of this month, there is a high probability that it will not be able to stop U.S. stocks from continuing to fall. As the yield on government bonds has approached zero, even if the QE is restarted, it will be necessary to expand the scope of asset purchases, and this will need to be coordinated by Congress. Trump said he would discuss tax cuts and fiscal stimulus plans with Congress as soon as possible, but it is likely that the Democratic-controlled House of Representatives will not give enough support during the election year.
Under the current circumstances, people from all walks of life generally believe that RMB bonds are more certain, which benefits from the widening of the spread between China and the United States, which will promote foreign investors to continue to overweight Chinese bonds. "We frequently see foreign central bank institutions increase their holdings of Treasury bonds within a six-month period. Overseas private sector investors (such as pensions) are active in 10-year Treasury investment transactions." Standard Chartered Bank (China) Co., Ltd. Financial Markets Division Chief Manager Yang Jing told reporters.
Author: 4. Alina Cho