Source: Titanium Media
After expectations of interest rate cuts fell through on Monday, the three major indices all hit new lows this week. While the market was extremely pessimistic, news of the central bank's interest rate cut came unexpectedly.
After closing on the afternoon of January 24, the State Information Office held a press conference. At the meeting, Central Bank Governor Pan Gongsheng said that the reserve ratio will be lowered by 0.5 percentage points on February 5 to provide 1 trillion yuan of liquidity to the market. Furthermore, tomorrow (January 25), small reloans to support agriculture will be lowered by 0.25 percentage points, from 2% to 1.75%, and the cost of comprehensive social financing will continue to be lowered steadily.
A number of market sources said that the timing and intensity of the announcement of the central bank's downgrade both exceeded market expectations, which will help reduce social financing costs, and the stock market will also be boosted by improved liquidity. Guo Yiming, a consultant of Jufeng Investment, believes that usually, the banking sector is expected to benefit, while the real estate sector as a whole benefits when capital costs are expected to fall. In addition, the downgrade stimulates active stock market trading and brings a boost to the brokerage sector, while non-ferrous and other resource stocks will also benefit from the release of liquidity and are expected to increase in valuation.
After the news was released, the Hang Seng Index, the state-owned enterprises index, and the Hang Seng Technology Index, which are still in the intraday market, rose strongly. By the close, they had risen by 3.56%, 4.13%, and 4.24% respectively. By the end of the session, China Financial Insurance, China Ping An, China People's Insurance Group, and China Taibao all rose by more than 5%. Agricultural Bank, Postbank, China CITIC Bank, and China Life Insurance all rose by more than 4%. FTSE China A50 Index futures jumped 2% in a straight line.
The Federal Reserve's suspension of interest rate hikes is objectively conducive to enhancing the autonomy of China's monetary policy operations
Regarding the impact of the Federal Reserve's monetary policy trend on China's monetary policy, Pan Gongsheng said that China's monetary policy has always insisted on putting me at the center, while taking into account internal and external balance. In 2024, the spillover effects of monetary policy in developed economies will develop in the direction of reducing pressure, and the monetary policy cycle gap between China and the US is abating. This kind of change in the external environment is objectively conducive to enhancing the autonomy of China's monetary policy operations and expanding the space for monetary policy operations.
Pan Gongsheng shared three ideas on what kind of policy measures to deal with possible deflation risks.
First, maintaining price stability and promoting a moderate price recovery is an important consideration in grasping monetary policy. We must adhere to the goals of monetary policy, maintain a stable currency value, and use this to promote economic growth.
The second is to optimize the investment of financial resources. Guide financial institutions to scientifically assess risks, restrict financing supply to industries with overcapacity, and meet reasonable consumer financing needs in a more targeted manner.
The third is to strengthen coordination between financial policy and other policies. This is a broader issue that goes beyond finance. It is necessary to use policy coordination to increase residents' income, expand employment, improve the social security system, thoroughly implement consumption-driven strategies, focus on supporting the expansion of domestic demand, promote matching between supply and demand, and promote a virtuous economic cycle.
The pace of credit investment is expected to be more balanced in 2024
In introducing credit investment, Xuan Changneng, Deputy Governor of the People's Bank of China, said that in 2023, the People's Bank of China will give full play to the dual functions of overall monetary policy and structure to guide financial institutions to strengthen credit support for the real economy, and the total amount of credit will grow steadily and rapidly.
By the end of 2023, the RMB loan balance was 237.6 trillion yuan, up 10.6% year on year, adding 22.7 trillion yuan for the whole year, an increase of 1.3 trillion yuan over the previous year. The credit structure continues to be optimized. By the end of 2023, the balance of inclusive small and micro loans had increased by 23.5% year on year, and the growth rates of “specialized, special and new” and technology SME loans were 18.6% and 21.9%, respectively. The balance of medium- to long-term loans in the manufacturing industry increased by 31.9% year-on-year. Among them, the growth rate of medium- and long-term loans in the high-tech manufacturing industry reached 34%, and the balance of medium- and long-term loans in the infrastructure industry increased 15% year on year. The growth rate of loans in these key areas and weak links was significantly higher than the overall loan growth rate of 10.6%.
Furthermore, Xuan Changneng also said that according to the situation over the years, there will be more new loans in the first quarter, especially in January. April, July, and October are all small months for loans. This seasonal rule is largely due to objective factors in economic and financial operations. Therefore, the fluctuations in credit data in a single month should not be interpreted too much; a more diverse perspective should be adopted. We can not only look at the scale of social financing that covers a wider range of areas, but also observe changes in financing costs from the perspective of price or interest rates, and reasonably evaluate the level of financial support for the economy.
Regarding the credit situation in 2024, considering that banks had a “good start”, various policies continued to be effective in the second half of last year, and it is expected that credit growth will continue to be relatively rapid in the first quarter of this year. The People's Bank of China will guide financial institutions to grasp the pace and steadily support the real economy. It is expected that the pace of credit investment will be more balanced throughout the year.
Promoting foreign exchange facilitation reforms in five areas
Zhu Hexin, deputy governor of the People's Bank of China and director of the State Administration of Foreign Exchange, said that foreign exchange facilitation reforms will work in the following five areas.
The first is to actively promote continuous efforts to facilitate cross-border trade and investment and financing. The second is to continue to make efforts to steadily promote a high level of institutional openness. The third is to continue to make efforts to steadily and steadily advance the internationalization of the RMB. Focus on trade and investment facilitation, strengthen local and foreign currency collaboration, further improve cross-border RMB related policies and infrastructure, and better meet the needs of overseas investors to allocate and hold RMB assets and risk hedging. At the same time, it is necessary to actively support the steady development of the offshore RMB market. In particular, it is necessary to strengthen the pivotal momentum of Hong Kong's offshore RMB market. Fourth, continue to make efforts to improve the two-in-one management of “macroprudence+microsupervision” of the foreign exchange market.
On the one hand, improve the monitoring, early warning and response mechanism for cross-border capital flows, strengthen market communication and guidance on expectations, and maintain the basic stability of the RMB exchange rate.
On the other hand, strengthen full coverage of supervision in the foreign exchange sector, strengthen cross-border RMB supervision, promptly detect abnormal disposal situations, and strictly crack down on illegal and illegal activities. Fifth, we must continue to make efforts to improve the operation and management of foreign exchange reserves with Chinese characteristics, and make every effort to ensure the safe flow, preservation and appreciation of foreign exchange reserve assets.
Six measures to deepen financial cooperation between Hong Kong and the Mainland
The People's Bank of China and the Hong Kong Monetary Authority have decided to launch six financial initiatives to further promote a high level of openness in the Mainland's financial sector, deepen financial cooperation between the Mainland and Hong Kong, and consolidate and enhance Hong Kong's status as an international financial center.
Xuan Changneng explained that the six initiatives cover various aspects such as financial market connectivity, cross-border capital facilitation, and deepening financial cooperation, and can be summarized as “three connections and three conveniences.”
Specifically, the first is to include bonds under “Bond Connect” as eligible collateral for the Hong Kong Monetary Authority's RMB liquidity arrangements. The second is to further open up overseas investors to participate in domestic bond repurchase business, and support all overseas institutions that have entered the interbank bond market to participate in bond repurchases. This also includes the “Bond Connect” channel. The third is to issue implementation rules to optimize the “Cross-border Banking Connect” business pilot in the Guangdong-Hong Kong-Macao Greater Bay Area to expand and facilitate individual investment channels in the Greater Bay Area. Fourth, in the Greater Bay Area, a policy to facilitate payment of housing purchases by Hong Kong and Macao residents is being implemented to better meet the home purchase needs of Hong Kong and Macao residents. Fifth, expand the scope of the Shenzhen-Hong Kong cross-border credit reporting cooperation pilot to facilitate cross-border financing for Shenzhen-Hong Kong enterprises. The sixth is to deepen the digital yuan cross-border pilot project to bring more convenience to Hong Kong and mainland resident enterprises.
Judging from the reaction of Hong Kong stocks and the A50 Index, this press conference may be a turning point for A-shares and Hong Kong stocks to stop falling and stabilize, but we still need to wait patiently for the market to regain confidence as to whether a “V” reversal can be achieved.
Editor/Jeffrey