Source: Brokerage China
Author: Qu Hongyan
Recently, China Yangtze Power hit a historical high and once again showed the slow bull stock trend of "tripling in ten years". The slow bull market has left behind many passers-by and brought good returns to the steadfast investors. It is "rare for those who triple in one year to be like carp jumping over the dragon gate, while those who double in three years are few and far between." On the other end of the investment world, however, violent collapses are also deafening, with many financial products suspected of "Ponzi schemes" ceasing payments, leaving investors with no hope of recovering their investments. Both positive and negative cases illustrate the importance of forming a suitable mentality towards money in one's lifetime; otherwise, sooner or later, you will divorce yourself from your money. "I call this the money mind, a person's IQ can reach 120, 140, or even higher levels, and perhaps some people's minds are good at doing one thing, while others are good at doing another. They can do things that most ordinary people can't do. But I know some very smart people who make very foolish decisions because they lack the money mind." Buffett once said so.
The so-called money mind refers to believing in common sense, believing in compound interest, being cautious and rational, thinking independently, prioritizing security over return, not dealing with people with questionable character, not easily guaranteeing for others, not believing in windfall profits, and not trying to cross legal norms for extra benefits. In today's world of ubiquitous information, everyone's wealth may become the "prey" of those with ulterior motives. Only with the money mind, can one form good behavior habits and shield oneself from separating from one's wealth.
Do not entrust your wealth easily.
Wealth is easy to lose but hard to accumulate, and trust is a vital reason leading to the rapid loss of wealth. "Do not allow anyone else to manage your business unless you can watch their every move closely and understand their behavior; or you have strong reasons to believe in their character and ability. For investors, this criterion determines when you can let someone else make investment decisions for you." Graham's criterion written eighty years ago is so clear. Almost all the investors who lost their wealth in the financial products have violated the above two criteria. They did not have the ability to closely supervise the whereabouts of their funds, nor did they have sufficient reasons to believe in the character of the product issuers. They easily invested their own wealth solely based on others' glib tongue and a piece of commitment paper. They did not act as gatekeepers of their own wealth and ended up with nothing left even if the government punished the wrongdoers. "An ounce of prevention is worth a pound of cure." This is a phrase Munger often says.
Destiny must be in one's own hands, and investors with a suitable money mind will try their best to find suspicious points in their investments to protect the safety of their principal. For example, whether the manager is trustworthy, whether the underlying assets are profitable, whether oneself can timely monitor the risks in the investment process, and whether the sales staff is obtaining large commissions. As long as any unreliable signs are found, these investors firmly will not invest their money.
Do not desire to get rich quick.
As in the capital market and anywhere else, making money is not easy, and desiring to get rich quick will lead to quick loss of wealth. In the capital market, the desire to get rich quickly often leads to investors over-allocating specific stocks, industries, or assets at the worst time. For example, buying high-risk stocks that can gain huge returns once an adventure succeeds, but the chance of success is very small, also known as "whispering stocks" by legendary fund manager Peter Lynch. "They often tell investors a story with explosive effects. These 'whispering stocks' have a hypnotic effect on people, and it is easy for you to believe that the story the company tells has an emotional appeal that can easily confuse you." This is like hearing a very tempting "sizzling" sound, making you salivate, but you did not notice that there is no steak on the grill. In the eyes of investors who lack the money mind, stable yield provided by blue chips such as China Yangtze Power cannot meet their demands. However, historical experience clearly shows that buying stocks lacking in safety solely based on imagined high yields is unwise. The long-term average investment return of general stocks is 9%-10%, which is also the average investment return of stock indexes in history, a benchmark to measure one's investment performance and the benchmark to measure fund investment performance.
Author: Shi Qian. Will this be the arrival of the "real wolf"? The consumption tax rumors suddenly spread in various investment groups yesterday after the close of trading. There are reports that a trillion-level consumption tax reform will be approaching, and luxury goods and high-end services may be the first to test. As of the close of trading this morning, consumer stocks suddenly rebounded collectively, and retail and duty-free areas led the rise. Among them,
Earlier today, the People's Bank of China announced that in order to optimize the open market operation mechanism, starting from today, the term of the open market 7-day reverse repurchase operation will be adjusted to a fixed interest rate and a quantity bid. At the same time, in order to further strengthen counter-cyclical adjustments and increase financial support for the real economy, the interest rate for the open market 7-day reverse repurchase operation will be adjusted from the previous 1.80% to 1.70%.
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From a weekly perspective, last week (July 15-19), the People's Bank of China put a net short-term funding of 1.17 trillion yuan, reaching a new high since March this year. The funding rate also fell last Friday, with R001 down 9bp to 1.91% and R007 down 1bp to 1.90%.
Over the weekend, the market generally expects that LPR will be adjusted. At around 9:20 this morning, LPR will be announced.
Finally, the interest rate is lowered.
The central bank made a big move early in the morning.
Earlier today, the People's Bank of China announced that in order to optimize the open market operation mechanism, starting from today, the term of the open market 7-day reverse repurchase operation will be adjusted to a fixed interest rate and a quantity bid. At the same time, in order to further strengthen counter-cyclical adjustments and increase financial support for the real economy, the interest rate for the open market 7-day reverse repurchase operation will be adjusted from the previous 1.80% to 1.70%.
Recently, the market has been expecting changes in the LPR quotation mechanism, which will switch from MLF interest rates to OMO interest rates. This morning's cut in reverse repurchase rates may also signal a subsequent cut in LPR.
CITIC Securities believes that based on overseas experience and recent policy trends of the central bank, the LPR quotation mechanism may be improved to enhance policy efficiency and market-oriented degree. In the short term, LPR quotations are expected to be cut to create more suitable policy conditions for credit recovery. With the progress of LPR reform, the cost of financing will continue to decrease, which will further release the potential for loan issuance. Although the short-term growth rate may not rebound significantly, the optimization of the overall structure and the improvement of the quality and efficiency of financial services for the real economy will also be enhanced.
Galaxy Securities believes that there are three reasons why LPR may be lowered in July:
Firstly, the current LPR quotation significantly deviates from the actual best customer interest rate, and the quotation quality needs to be improved. At the end of March, about 40% of the loans from financial institutions were executed with LPR reductions, compared to only 15.55% in August 2019. The People's Bank of China emphasized at the Lujiazui Forum that it will continue to reform and improve the loan market quoted interest rate (LPR) and focus on improving the quality of LPR quotations to more accurately reflect the level of loan market interest rates.
Secondly, considering the comprehensive bank funding costs, risk premiums, supply and demand and other factors, there is room for LPR quotations to be lowered. After the prohibition of "manual interest supplement" in April, bank funding costs may have declined in the second quarter, and net interest spread pressures may have eased; the comprehensive financing rate of Wenzhou private financing in the second quarter remained at a historically low level, and the yield spread between AA and AAA corporate bonds of ChinaBond narrowed significantly after the LPR was lowered in February, indicating a further decline in risk premiums. From the perspective of the supply and demand of funds, the interest rate of the June period of National Interbank Borrowing and Lending unsecured bonds decreased rapidly in July, and the supply of funds was relatively abundant compared with demand.
Thirdly, the current actual interest rate is high and needs to be further reduced to promote economic growth, and the necessity of reducing interest rates is increasing. At present, the actual interest rate is high, and the endogenous financing demand of the private sector is weak. The financing rate for residents to purchase housing is still higher than the return on investment. Observation data show that the difference between the residential investment return rate and the financing cost has a leading effect on the growth rate of real estate sales. The investment willingness of the corporate sector has declined and the expansion of reproduction has slowed down. From the perspective of the government sector, since 2024, the issuance of local government special bonds has been slow, and the investment return rate is not enough to cover the cost, which is one of the reasons. The loan growth rate in the second quarter is slowing down, and GDP growth rate is down by 4.7% QoQ.
Changes in the open market
Last Friday, the People's Bank of China continued its large-scale reverse repo operations, with a net injection of 57 billion yuan. From a weekly perspective, last week (July 15-19), the People's Bank of China put a net short-term funding of 1.17 trillion yuan, reaching a new high since March this year. The funding rate also fell last Friday, with R001 down 9bp to 1.91% and R007 down 1bp to 1.90%, and the overnight and 7-day interest rates changed from inverted to basically flat.
According to Huaxi Securities, from the perspective of money sentiment indicators, the CNEX money sentiment index reached a high of 60 in the morning of July 16 and showed a downward trend after fluctuation. It opened at 51 on July 19 and then basically maintained below 45. With the decline in funding costs on Friday, the market's concerns about funds also eased significantly. The trend of funding on July 19 was generally stable, although DR001 opened high at 1.96%, it quickly fell to the 1.85% line in the morning and fluctuated around that level. Although GC001 rose in the day, the overall range of volatility was not large, and it fell to 1.80% in the 30 minutes of extra trading after the market close.
The Financial Times published an article on July 12 entitled "Will LPR Be Improved?" The article mentioned that "the medium-term lending facility interest rate has a certain reference value for LPR pricing, but it is not completely linked", "the current LPR quotation and the best customer loan rate have certain deviations, and the quality of quotations needs to be strengthened in the future to reduce the degree of deviation", "the central bank will clearly take short-term operating interest rates as the main policy interest rate, which means that China's monetary policy control framework will undergo an important transformation" and other information, indicating that the pricing reference of LPR may be switched from MLF interest rate to OMO interest rate.
On July 15, the Financial Times wrote an article entitled 'The interest rate regulation mechanism will be further improved', pointing out that industry experts believe that there is a certain deviation between the current LPR quote and the best customer loan interest rate, and that they need to strengthen the quality assessment of the quote in the future and reduce the deviation. It may also be considered to draw on international experience and use short-term market interest rates similar to SOFR as pricing benchmarks for floating-rate loans. In July, MLF was priced at parity and continued to shrink. This week's open market operations of reverse repurchase continued to have a large net inflow, confirming that the policy rate color of MLF operational interest rate will gradually fade, and the space for interest rate reduction opens up after LPR is decoupled from MLF.
Expectations for reserve ratio reductions
From the perspective of historical replay, when there is a deviation between the interest rates in the fund market and the policy interest rate, as well as between the interest rates in the long-term market and the policy interest rate, they usually move in the same direction. It is more common for the fund interest rate and the long-term interest rate to be at the upper or lower end of the policy interest rate at the same time, reflecting the transmission of policy control from the short-term to the long-term. When the directions of the two are inconsistent, it occurred in the second half of 2016, the second half of 2019, and from 2024 to the present. They have all been characterized by fund interest rates being near or at the upper end of the policy interest rate and long-term market interest rates being at the lower end of the policy interest rate, corresponding to a stage of rapid interest rate decline.
Guangzhou Futures believes that the cycle of loose monetary policy is longer, and the market usually holds expectations for countercyclical regulation. The long-term interest rate has fully or excessively traded on the expectations of future central bank rate cuts and has exceeded the policy interest rate, while the fund interest rate is more sensitive to policy regulation and trades based on 'reality.' At present, in combination with the central bank governor's speech and the Financial Times article, the LPR reform is approaching, and the mechanism of MLF rate-LPR quote may evolve into a direct linkage between LPR and the money market rate. A series of important economic data released recently have shown that the economic development path continues to be a wave-like recovery, and the necessity of countercyclical adjustment of monetary policy is still high. The market is full of expectations for reserve ratio cuts and LPR cuts in the third quarter.
Another point worth noting is that the maturity amount of MLF in the next five months will increase significantly, namely 401 billion yuan, 591 billion yuan, 789 billion yuan, 0.145 billion yuan, and 0.145 billion yuan. Bank securities believe that, in addition to the peak of government bond issuance in the third quarter, the central bank may increase the net inflow of 7-day reverse repo in the third quarter or cut reserve ratios to replace some of the matured MLF.
However, the internal and external constraints on further loosening of monetary policy still exist. The first is the pressure on the net interest margin of internal banks and the guidance of the normal upward interest rate curve, and the second is the pressure of RMB depreciation. The realization of interest rate reduction in the short term depends on the marginal changes of internal and external constraints.
Editor / jayden