Guotai Haitong Securities released a research report stating that as the United States shifts from 'K-shaped divergence' to 'reflation,' attention should be paid to the correlation of major asset classes under the ebb and flow of global liquidity.
Guotai Haitong Securities released a research report stating that as the United States transitions from "K-shaped divergence" to "reflation," global liquidity expectations appear to have recently shifted from easing to tightening. Bitcoin, serving as a barometer for global liquidity, has accurately priced these two phases. Correspondingly, the Hang Seng Tech Index and the Nasdaq, both highly sensitive to global liquidity, have come under pressure in succession, while there has been a shift in investment style within the A-share market. Under the anticipated policy mix of "rate cuts + balance sheet reduction," this is bound to be an atypical reflation trade (at times more akin to a stagflation trade). Pay attention to the interconnection of major asset classes amid the "tides" of global liquidity.
The main viewpoints of Guotai Haitong are as follows:
Origins of "K-shaped divergence"
Structural characteristics of the U.S. balance sheet.
The balance sheets of the U.S. private sector are relatively healthy (especially for groups that added leverage during the post-pandemic QE phase in 2020), resulting in high-net-worth individuals possessing substantial net assets (mainly in real estate and equity). Moreover, the interest rate structure in the U.S. after the pandemic is rather unique; given that significant credit expansion occurred during the QE phase, the existing mortgage rates for high-net-worth individuals are not particularly high (currently at 4.2%). By contrast, the current interest rate for newly issued 30-year loans stands at 6.1%.
This leads to stark differences in interest rate sensitivity.
High-net-worth individuals can monetize their net assets through cash-out refinancing, supporting consumer resilience and liquidity in the U.S. stock market. Thus, when the spread between old and new loans (the marginal cost of refinancing expansion) narrows, the momentum for refinancing expansion significantly increases. Conversely, the "new debt-bearing group" operates in the opposite manner, exchanging cash flow and debt for assets. If economic expectations do not show a trend reversal, this group exhibits lower sensitivity to interest rates. This is the essence of the "K-shaped divergence" in the U.S. economy: the upper end represented by "high-net-worth individuals" corresponds to the U.S. stock market, while the lower end represented by the "new debt-bearing group" corresponds to the real estate market.
The destination of "reflation"
As "K-shaped divergence" transitions to "reflation"
The bank observed that the lower end of the U.S. "K-shaped divergence" is converging toward the upper end. In other words, "high-net-worth individuals" stabilize the real economy and asset price expectations through refinancing expansion, creating favorable conditions for the expansion of the "new debt-bearing group," thereby achieving "the rich leading the less affluent." The housing sector, corresponding to the lower end, happens to be the "source of inflation." The U.S. economy appears to be quietly shifting from "K-shaped divergence" to "reflation."
The "self-reinforcing" mechanism of inflation expectations
In fact, inflation expectations driven by the demand side have a 'self-reinforcing' mechanism. First, the strengthening of inflation expectations can passively lower real interest rates. Second, credit spreads (mortgage rates - Treasury bond rates) are pro-cyclical, and inflation expectations can compress credit spreads. Therefore, a counterintuitive phenomenon is that the current real mortgage interest rate in the United States (after excluding inflation expectations) is at its lowest point in the past three years and continues to decline unilaterally. This precisely explains why, recently, while long-term U.S. Treasury bond yields have been rising with volatility, the housing sector at the bottom of the K-shaped recovery has been rebounding against the trend.
The Tangible Manifestation of Liquidity 'Tides' in Assets
As the United States shifts from 'K-shaped divergence' to 'reflation,' global liquidity seems to be transitioning from easing expectations slowing down to tightening expectations gaining momentum. Bitcoin, as a barometer of global liquidity, accurately priced these two phases. Accordingly, liquidity-sensitive markets such as Hang Seng Tech and Nasdaq came under pressure one after another, and there was a rotation in style within the A-share market. Under the anticipated policy mix of 'rate cuts + balance sheet reduction,' this is destined to be an unconventional reflation trade (sometimes resembling a stagflation trade). For example: the U.S. dollar rebounded but not strongly enough (compared to Q4 2024); the RMB exchange rate trend remained unchanged (anchored to short-term U.S. Treasury bonds). Pay attention to the correlation of major asset classes under the ebb and flow of global liquidity 'tides.'
Risk Warning: Policy uncertainty under the new Federal Reserve Chair.
Editor/Lee
