Source: Broker China
A-shares and Hong Kong stocks have reversed yesterday's downward trend; today they have collectively surged. In the afternoon, the increase increased even more. So, what actually happened? Judging from the news from various investment groups, it is still related to a “Chinese version of QE” rumor.
So, how credible is this rumor? How big is the impact? Many research institutes have also interpreted this. A capital market boss believes that this means that the central bank will expand its financial statements to curb passive credit contraction. However, Huatai's fixed income believes that trading treasury bonds can clearly be a necessary supplement to open market operations. The current system is also permitted, but the bottom line of deficit monetization still exists, so there is no need for excessive interpretation.
Sudden surge
In early trading today, the A-share and Hong Kong stock markets reversed yesterday's decline and began a major counterattack journey. In the afternoon, the two major markets also soared.
As of press release,$Chinext Price Index (399006.SZ)$At one point, it rose more than 2%,$Shenzhen Component Index (399001.SZ)$An increase of more than 2%,$SSE Composite Index (000001.SH)$An increase of more than 1%. The concept of a low-altitude economy continued to explode in the afternoon. The sector index surged more than 9%. Jianxin Shares, Shencheng Stock Exchange, Jindun Shares, and Blue Ocean Huateng all rose and stopped by 20cm. Nearly 20 stocks including Excalibur, Sichuan Jiuzhou, CITIC Haizhi, and Wanfeng Aowei closed, and more than 10 stocks including Rice Information, Zongheng Shares, Guanglian Airlines, and Commercial Network Electronics rose more than 10%. The gaming and media sectors rose in the afternoon. Kunlun World Wide rose more than 9%, Zhongguangtian rose more than 7%, and reader culture, Tianyu Digital Science, Yuanwang Technology, and Shengtian Network followed suit. However, yesterday's strong banking sector plummeted today, and yesterday's strongest sector, Longevity Pharmaceuticals, is also clearly divided today.
On the Hong Kong stock side, in the afternoon,$Hang Seng Index (800000.HK)$The increase was extended to 2%,$Hang Seng TECH Index (800700.HK)$At one point, it surged by more than 4%,$ZHONGSHENG HLDG (00881.HK)$An increase of more than 10%,$MEITUAN-W (03690.HK)$An increase of more than 8%,$JD.com (JD.US)$An increase of more than 7%,$LI NING (02331.HK)$Up nearly 6%.
So, what are the benefits and incentives? Analysts believe that the biggest contributor to today's rise is a rumor: there is news that the central bank may end up buying debt, and the “Chinese version of QE” is about to begin. A capital market boss put it bluntly that this means that the central bank will expand its financial statements to curb the passive contraction of credit. For the equity market, this is naturally a big plus. However, this news, which directly favors the treasury bond market, does not seem to have caused much turbulence in this market. Today, although treasury bond futures have also risen, the overall increase is not significant. This also means that it represents rational and professional funding, and the response to this rumor is “calm.”
How big is the impact?
Currently, the above rumor is spreading widely in the market, but it has not been officially confirmed. So how should we distinguish and observe?
According to the People's Bank of China Law, the central bank is currently unable to directly buy treasury bonds in the primary market. If the law were to be amended, the signal would be very significant. However, the central bank can still trade treasury bonds in the secondary market. This is part of China's central bank's open market operation tools. Wind shows that the central bank still operated it in 2002. So the system is not an issue. Moreover, the central bank currently holds about $1.5 trillion in treasury bonds, mainly special treasury bonds purchased in 2007, of which 750 billion was renewed last year.
Wang Xianshuang of GF Securities believes that logically small purchases can be directly market-traded in the secondary market, but large purchases are generally likely to be targeted. The approach of 2007 and last year was for the central bank to target a certain amount of money, the bank went to first-level targeted treasury bonds, then the central bank made targeted purchases from the institution at the second level, and at the same time recovered the targeted funds to achieve an increase in the central bank's holdings of government bonds.
Wang Xianshuang said that credit currency in the modern economy is debt currency. Debt is the source of money, and government debt is the main source of base currency (because it is higher ranked). If there is no debt, there is no monetary or financial wealth; the core is not whether debt should be monetized. Currently, one should not be bound by vague notions of monetizing deficits. Moreover, the reason this rumor is likely to occur is that currently overreserves are low, banks are tight, and the market lacks a long-term base currency; the statutory reserve ratio is also very low, and if the long-term base cannot be replenished, regulation of the reserve ratio will gradually fail; recently, the issuance of government bonds has increased, and the market's carrying capacity is becoming more limited. Judging from reducing the cost of government debt, central bank purchases are a good method. Therefore, if the central bank were to buy government bonds at this time, it would make sense and gain more in one fell swoop, opening a new model of fiscal and monetary cooperation. We can not only observe whether this batch of treasury bonds was issued in a targeted manner when issued, but also observe the accounts of government debt in central bank statements.
Huatai's fixed income said that the central bank can originally trade treasury bonds in the secondary market, but the open market can easily be operated at 100 billion or even trillion dollars. If direct purchases are used, it can easily cause price fluctuations, and using the form of pledge repurchases, firstly, it will not affect the price. Second, it can maintain a stable policy interest rate regulation market. Over the past three years, government bonds, central bank notes, etc. can be incorporated into collateral, making it easy to increase amounts. However, with regard to the above rumor, they believe that the bottom line of deficit monetization still exists, and there is no need to overinterpret it.
There are also experts who think this is probably not QE. QE is an unconventional monetary policy. It is often a measure introduced only after conventional policy space has been exhausted. The purpose is to further reduce interest rates and provide sufficient liquidity. However, there is still plenty of room for China to downgrade and cut interest rates. In order to achieve a loose monetary policy, it is entirely possible to first downgrade and cut interest rates, and then consider QE by buying treasury bonds through the central bank. Furthermore, the issuance of ultra-long-term special treasury bonds is expected to begin in the second quarter. Considering the scale and length of time, there is currently no basis for market-based issuance. If the central bank buys treasury bonds this year, it is likely that it will also be the same as in 2007, in line with the targeted issuance of special treasury bonds.
Edit/Jayden