Source: Broker China Author: Shi Qian

This afternoon, there was a sudden structural change in the market. Crude oil and gold continued to rise, and Chinese treasury bond futures of various matures also rose sharply. At the same time, with$CHINA VANKE (02202.HK)$Real estate stocks, led by the market, continued to weaken, and the insurance sector in the Hong Kong market plummeted by more than 3% in the afternoon. What's the logic behind this?

Analysts believe that the rise in crude oil and gold reflects the geographical situation. The market anticipates that Iran may launch an attack on Israel this weekend; if China's treasury bonds rise sharply, MLF interest rates may be lowered next Monday; while in the equity market, the most reassuring currently is still Vanke. The insurance sector, which has a high correlation between underlying assets and real estate, is also being impacted as a result.

So, how big will the impact be next?

The geopolitical situation is complicated

Today, the market is already expecting Iran to take action against Israel. The US and Israel are also on high alert for possible attacks by Iran or its proxies, as this may increase regional tension caused by the war in Gaza. A US official said on Thursday evening local time that the US expects Iran to launch an attack on Israel, but the scale of the attack will not be large enough to plunge Washington into war.

Today, both international oil and gold prices remain high.

Iran vowed to retaliate against Israel after the fatal attack on the Iranian embassy compound in Syria last week. Fears about this possible attack have sparked diplomatic conversations around the world.

The Iranian delegation to the United Nations said that if the UN had condemned this attack, the need for Tehran to “punish” Israel by launching a deadly attack on Iran's consulate in Damascus last week could have been avoided.

Prime Minister Benjamin Netanyahu warned that Israel was preparing for a “situation” outside of Gaza. “We made a simple rule: Whoever hurts us, we hurt them.” he said.

US Secretary of State Brinken spoke with the foreign ministers of Turkey, China, and Saudi Arabia and told them that all countries should urge Iran not to escalate the Middle East conflict. America's top general in charge of Middle East affairs has gone to Israel. Furthermore, the British Foreign Secretary warned Iran's foreign minister that Tehran “must not drag” the Middle East into a wider conflict.

Israel's Defense Minister Yoff Gallant spoke with Brinken and US Secretary of Defense Lloyd Austin. US officials said that the US supports Israel in dealing with Iran's threat. Gallant warned that such attacks could lead to an escalation of the situation in the region. Following Iran's threat, the US State Department restricted US government personnel from traveling to Israel.

Vanke's crisis needs to be solved

The geographical situation will undoubtedly increase the risk of inflation, causing expectations of US interest rate cuts to fall again and again. However, as far as A-shares and Hong Kong stocks are concerned, there is another unexpected factor recently, and that is Vanke. A few days ago, it was reported in the market that Xiao Jin, general manager of Vanke Jinan Company, had been taken away for investigation by the Shandong police. This triggered a sharp drop in Vanke's stock price. In the afternoon of the same day, Vanke's domestic debt fell collectively. “200,000 Ke 08” and “200,000 Ke 04” all fell by more than 4%, while “200,000 Ke 06,” “220,000 Ke 06,” and “210,000 Ke 04” fell more than 3%. Vanke's stock price also plummeted. Vanke's stock price has also continued to fall in recent days.

Vanke's crisis is not limited to Vanke itself; it is also related to the financial industry, especially insurance. Today, the Hong Kong stock insurance sector has plummeted, which probably has something to do with this. Because many of the underlying assets of insurance involve real estate. At the beginning of March this year, due to public opinion disturbances from well-known real estate companies (rumors such as debt rollover), the insurance industry held a large amount of real estate assets. As a result, related risks caused the overall insurance stock price to drop by 3.16%.

In addition, Guotai Junan believes that the investment performance of the insurance industry under a high base is under slight pressure. Profits are expected to increase negatively in the first quarter of 2024: the equity market picked up in the first quarter of 2024 from February to March after experiencing a pullback in January, but the increase was still below the level of the first quarter of 2023. It is expected that insurance companies' equity investments included in FVTPL will still be under some pressure. Some companies are expected to see a better than expected investment performance due to the theme of grasping high-dividend assets; on the other hand, the yield on ten-year treasury bonds in the first quarter of 2024 falls 26.29bp to 2.29%, and is expected to be factored in FVTPL's bond assets yielded better returns, partially hedging the impact of declining returns in the equity market. Under a high base, the investment side is expected to be under slight pressure. The net profit of listed insurers is expected to be slightly pressured in the first quarter of 2024.

An expectation

MLF operations will take place next Monday (April 15). On the eve of March 15, foreign media hyped up news about MLF interest rate cuts, but the follow-up did not meet expectations. This time, the foreign media did not show similar expectations, but that doesn't mean the market doesn't have any. Currently, some market participants have anticipated that MLF interest rates may be adjusted next Monday. Therefore, today's treasury bond trend is quite strong.

Treasury bond futures continued to rise in the afternoon. The 30-year main contract rose 0.55%; the 10-year main contract rose 0.36% to 104.53 yuan, a record high; and the 5-year main contract rose 0.15% to 103.48 yuan, a record high in nearly 4 years.

Also, it is worth noting that International Monetary Fund (IMF) Managing Director Kristalina Georgieva warned that although the global economy has avoided the recession that many people are worried about, it is still facing “moderate growth” and “popular dissatisfaction” that could last up to ten years.

“The alarming reality is that global economic activity appears weak by historical standards, and growth prospects have been slowing since the global financial crisis.” Georgieva said. She explained, “Inflation has not been completely defeated, fiscal buffers have been exhausted, and rising debt poses a major challenge to public finances in many countries.”

edit/lambor