As the world enters the "Year of Water Harvesting" in 2022, how will policy differentiation affect China?
In 2022, under the pressure of high inflation, many central banks will reduce the scale of asset purchases and initiate interest rate hikes.
China's economic and policy cycles will run counter to those of the world's major economies.
How will this affect China's economy and market operation logic?
Economists and investment managers interviewed by a reporter from China Business News said that the Fed’s interest rate hike cycle will easily lead to capital outflows from emerging markets, increasing pressure on China’s offshore market, and the inflow of northbound funds will most likely be lower than this year’s over 400 billion. The size of the yuan.
Lian Ping, chief economist of the Zhixin Investment Research Institute, told reporters that it is expected that China may still lower its RRR and LPR (loan quote rate) in 2022, and according to forecasts, China’s GDP growth rate may be 8% from 2021 to 2022. And 5.4%, the United States may be 5.6% and 4%, the convergence of the economic growth gap between China and the United States is relatively rare in the past few years.
However, with the gradual transmission of China's policy of stabilizing growth, the economic inflection point is expected to come after the first quarter. He predicts that economic growth in 2022 will be low before high, and the growth rate will return to the normal level quarter by quarter, not only can complete the possible set 5%~ With the 5.5% growth target, it is also possible to achieve a growth of around 5.7%.
Developed economies have entered the "Year of Water Harvesting"
The US CPI in November increased by 6.8% year-on-year, setting a 40-year high. The core CPI excluding food and energy increased by 4.9% year-on-year, far exceeding the 2% target.
The US Federal Open Market Committee (FOMC) has started to reduce its bond purchases (Taper) since November, and hinted at the interest rate meeting in December that it will end Taper in March next year, and it is expected to raise interest rates three times in the next two years.
Currently, the US job market continues to recover, and the unemployment rate fell back to 4.2% in November.
Zhu Haibin, chief economist at JPMorgan Chase China, told reporters that the unemployment rate of 4% will be the trigger point for the Fed to raise interest rates, and the fight against inflation is more urgent.
The Bank of England has unexpectedly raised interest rates by 15 basis points to 0.25% in December, and will end its bond purchases at the end of the year.
So far, the market expects the Bank of England to raise interest rates to 0.5% in March next year and 1% in September.
This hawk's turn took place against the background of the outbreak and spread of Omi Keron mutant strains.
Although the inflation problem in Europe is far less serious than that in the United States, inflation in the 19 euro zone countries reached 4.9% in November, setting a record for nearly 25 years.
The European Central Bank’s Anti-epidemic Emergency Bond Purchase Program (PEPP) will expire in March next year, but it will not end its bond purchases before at least September 2022.
"The European Central Bank will purchase 40 billion euros in the second quarter of next year, and 30 billion euros in the third quarter, and continue to maintain the 20 billion euros of debt purchases until it confirms the appropriateness of stopping debt purchases. The European Central Bank expects an inflation rate by the end of 2022. The former will start to decline and will be close to 2.3% by the end of the year. The inflation rate is expected to be 1.8% in 2022 and 2023. In the current environment, European Central Bank President Lagarde believes that interest rates will not be raised next year, but we believe that the European Central Bank is very likely to increase Raise interest rates before the end of 2022." City Index senior analyst Joe Perry told reporters.
As far as Japan is concerned, Prime Minister Fumio Kishida recently announced a new stimulus plan worth US$490 billion including direct disbursements.
In addition, the Bank of Japan stated at its December meeting that it will extend the emergency financing of small businesses for six months, but will stop purchasing corporate bonds at the end of the current fiscal year (March 2022).
This is not a big move, but it still constitutes some form of stimulus reduction.
With the rapid advancement of vaccination, the bank revised its fiscal year 2022 growth forecast from 2.7% to 2.9%, and the full-year inflation forecast is 0.9%.
"The Bank of Japan’s inflation target is 2%. Therefore, it is likely to continue to slightly reduce the scale of bond purchases in 2022. Once inflation reaches 2%, the Bank of Japan can withdraw from the zero-interest rate 10-year Japanese bond yield control plan. Here After that, you can consider raising the current -0.1% interest rate. There may not be a rate hike in 2022. Inflation has only reached a positive value in the past few months. Before that, inflation was negative for the entire year." Perry said .
China may still lower its RRR and lower LPR
In contrast, China's economy is still in the stage of peaking down. After the recent RRR cuts and "interest rate cuts" are quickly implemented, the outside world expects that monetary policy will likely become loose in 2022, and fiscal policy will continue to exert force.
Lian Ping told reporters that a variety of needs such as stable growth, employment, price stability, balance promotion, and risk prevention will exist at the same time next year. In the context of increasing downward pressure on the economy, rising inflation expectations, and increasing expectations for overseas interest rate hikes, China’s currency The policy may still maintain a sound tone and tend to operate on a looser side, but there is no need and conditions for substantial easing.
However, taking into account the linkage of finance and currency, it is expected that the RRR will still be slightly reduced by one or two times in the first half of the year; the central bank is expected to actively play the role of structural tools in guiding credit for agriculture, rural areas, small and micro businesses, and carbon emission reduction to improve bond issuance. At this link, we will pay attention to preventing and resolving major risks; in addition, the central bank may continue to release the dividends of the LPR reform, and there is still a possibility of a slight decline in LPR, which will promote the steady decline of corporate financing costs.
He said that next year, the difference in GDP growth between China and the United States may narrow to less than 2 percentage points, and the Sino-US interest rate gap will continue to narrow, and it may be difficult for the renminbi exchange rate to rise sharply.
Erik Norland, executive director and senior economist of CME Group, told reporters that strong exports are undoubtedly the main driving force supporting the renminbi's surge in 2021, but the momentum may slow down in 2022.
In his view, the bottleneck of the global supply chain will tend to ease.
According to data from Drewry, an international shipping research and consulting agency, the shipping price from Shanghai to Los Angeles was US$12,172/FEU on September 30, and US$11,173/FEU on October 7th, a drop of 8.2% to 11. The month has fallen to the $9,000/FEU range.
However, the agency still believes that China's economy will start to stabilize and improve in the second quarter.
Wu Zhaoyin, director of macro strategy at AVIC Trust, mentioned to reporters that, combined with the recent epidemic in the Yangtze River Delta and the inertial decline in real estate investment, it may be the most difficult period of the economy from now to the first quarter of next year, whether it is an increase in fiscal expenditure or a certain currency. The degree is loose, and the actual implementation of the policy to the real economy will take until the end of the first quarter or even the second quarter of next year.
After the second quarter of next year, there is a high probability that the economy will bottom out.
Hong Kong stocks and China concept stocks are still under pressure
As far as the stock market is concerned, mainstream institutions are still optimistic about the follow-up performance of A-shares, and foreign investors’ views are more optimistic than Chinese investors. , Chinese concept stocks listed in the United States maintain a prudent attitude.
Fund managers of many international asset management institutions told reporters that their current positions in U.S. and Chinese stocks have declined, and they hope to make further arrangements after the policy is clear; Morgan Stanley China Equity Analyst Wang Ying mentioned to reporters earlier , It is more recommended to buy Chinese concept stocks that meet the requirements of "secondary listing" and sell companies that do not meet the requirements of "secondary listing" and have a high proportion of foreign investors (more than 20% of the tradable market value).
This strategy has accumulated a return of 50% since May 21, 2020 (annualized return of 30%).
Wu Zhaoyin also told reporters that Hong Kong stocks and China concept stocks are still bottoming out.
In his view, the continuous decline of Hong Kong stocks also has exchange rate factors from a macro perspective. Since the beginning of this year, the currencies of emerging market countries such as the euro, the yen and the Korean won have all fallen sharply against the US dollar. The yuan depreciated 11% against the U.S. dollar, and other emerging market currencies depreciated even more. In this context, the Hong Kong dollar should have depreciated against the U.S. dollar along with emerging market currencies. However, due to its linked exchange rate system, the exchange rate of the Hong Kong dollar against the U.S. dollar remained fixed. This is the fact If the Hong Kong dollar is overvalued, international capital will sell Hong Kong dollar assets, which will cause the Hong Kong stock market to continue to fall.
If the U.S. dollar continues to strengthen, Hong Kong dollar assets, including Hong Kong stocks, may still fall.
Although nearly HK$400 billion in southbound capital has flowed into Hong Kong stocks this year, it may still be difficult to resist the outflow of international capital.
"This year, the major global capital markets' stock indexes are mainly rising. For example, the German DAX index rose 15%, the Nikkei 225 index rose 5%, the Korean Composite Index rose 4.5%, and the Hang Seng Index fell 14%, but if the exchange rate is depreciated When the amplitude is superimposed on the stock indexes, the stock indexes of Japan, South Korea, and Germany have little or even losses, while the decline of Hong Kong stocks is relatively less conspicuous.” Wu Zhaoyin said.
Zhao Wenli, chief Hong Kong stock analyst at CCB International, told reporters that since Hong Kong’s linked exchange rate system pegs the Hong Kong dollar to the US dollar, the tightening of the US monetary policy may directly affect Hong Kong’s adoption of the same policy tightening.
In the past tightening cycles (2007~2008 and 2014~2019), Hong Kong's liquidity situation was obviously affected, and the impact of QE reduction was significantly less than the impact of interest rate hikes.
(Author: Zhou Ailin)