Key investment points:
In February 2022, cross-border capital flows showed net outflow pressure. The scale of bank agent net foreign exchange settlement decreased by more than 80% month on month to US $2.567 billion; The net foreign exchange settlement scale of securities investment by banks on behalf of clients recorded a deficit of - 2.711 billion US dollars; In February, the bank recorded a deficit of - 6.48 billion US dollars in foreign collection and payment on behalf of customers, and a deficit of - 32.306 billion US dollars in collection and payment on behalf of customers in securities investment, the largest monthly deficit since 2010.
Split between local currency and foreign currency: in February, the balance of foreign-related revenue and expenditure of banks settled in foreign currency was US $18.733 billion. The currency split of securities investment projects: the balance of foreign currency securities investment was US $14.054 billion, and the balance of securities investment settled in RMB was US $18.252 billion (land stock connect and bond connect funds).
Split of stocks and bonds: the securities investment deficit settled in local currency in February was mainly contributed by the reduction of bond holdings, and the northward capital outflow has not been reflected in the cross-border capital flow. In 2022, the capital of inland port link has turned into a net outflow of 39.565 billion yuan. The net outflow of cross-border capital in the stock market will be reflected in the data of bank settlement and sales of foreign exchange and foreign collection and payment in March, which indicates that with the Fed officially starting the process of raising interest rates, and does not rule out the possibility of a single interest rate increase of 50 BP in the future, the pressure of cross-border capital outflow from securities investment accounts may increase in the next six months.
Assess the pressure of cross-border capital outflow: judging from the comparison of economic fundamentals, terms of trade and capital flow, the unilateral exchange rate of RMB against the US dollar has been overestimated since November 2021, and the exchange rate level of the US dollar against the RMB should be in the range of 6.40-6.50. However, compared with the end of 2019, the RMB is also a currency with significant appreciation. The return of the RMB exchange rate to the equilibrium exchange rate this year does not mean the beginning of the depreciation trend.
Bond link: the interest rate gap between China and the United States continues to narrow. From the perspective of bond link, the important factor affecting the holding of Chinese bonds by overseas institutions is the change of interest rate spread between China and the United States. Moreover, in fact, the change of interest rate spread between China and the United States is ahead of the change of foreign debt holdings. (1) As the interest rate gap between China and the United States narrowed, the speed of foreign investment buying Chinese bonds decreased simultaneously; (2) The inflection point of foreign debt holding is only after the interest rate difference between China and the United States reaches the inflection point.
Land stock connect: the US dollar index rose strongly. What affects the cross-border capital flow of the stock market under the securities investment account is the "interest spread" of domestic interest rate and the rise and fall of the US dollar index, rather than the fluctuation of the RMB exchange rate.
Risk tips: (1) the tightening path of monetary policy of the Federal Reserve has developed beyond expectations; (2) The risk of global inflation exceeding expectations or even "stagflation" or reshaping the monetary policy cycle; (3) There is still uncertainty about the monetary policy path of the Central Bank of China.
