summary
In just four trading days in 2022, the interest rate of ten-year US bonds has increased by more than 20bp, the CSI 300 index has decreased by 2.2%, and the interest rate of Chinese bonds has increased slightly, which is quite similar to the market trend at the beginning of 2021. Will the rapid rise in US bond interest rates lead to another sharp adjustment in the Chinese market? We believe that there are three important changes in macro conditions that are less likely to cause significant adjustment in the Chinese market. It is recommended not to be pessimistic, maintain over allocation of Chinese stocks and interest rate bonds, and standard allocation of overseas assets (outlook for major asset allocation in 2022).
The Fed's "table contraction" signal pushed up the long-term interest rate of US bonds
The minutes of FOMC meeting in December (released on January 6) showed that the officials attending the meeting had a full discussion on the issue of "table reduction". Some officials attending the meeting believed that "shrinking the table" in advance to push up the long-term interest rate would help tighten liquidity, control inflation and avoid too flattening the interest rate curve. The minutes of the meeting clearly pointed out that the time interval between this "table reduction" and the first interest rate increase may be shorter than the last tightening cycle, because the macro environment of this interest rate increase cycle is significantly different from the last interest rate increase cycle . We believe that the advance of the time point of "table contraction" is connected with the pre logic of the rhythm of interest rate increase, which is the passive choice of the Federal Reserve in the face of unprecedented inflationary pressure, is the specific performance of the "atypical" interest rate increase cycle (US bond interest rate 2022 Outlook: "atypical" interest rate increase and high wave market ", December 2021). We remind again that the US policy tightening cycle is quite special, and the role of historical induction is relatively limited. To predict the market trend, we need to make a deductive analysis according to the "atypical" characteristics of the tightening cycle: the starting time of the interest rate increase cycle is ahead, the rhythm is fast before and slow after, and the time interval between taper, interest rate increase and "table contraction" is significantly shortened, Or form a sustained thrust on US bond interest rates. According to the analysis framework of "interest rate expectation + term premium", we expect the ten-year US bond interest rate to fluctuate upward in 2022 and rise to 2.1% by the end of the year; The term premium is included in too many pessimistic expectations, and there is more room for adjustment. the interest rate of US Treasury bonds in the last ten years has increased by more than 20bp (chart 1), and the term premium adjustment contribution is ~ 10bp (chart 2). The futures market expects that the number of interest rate hikes in 2022 has exceeded 3 times (Figure 4), and the probability of interest rate hikes in March has reached 86% (Figure 3). The market may have fully priced the rhythm of interest rate hikes in 2022. If the recent US economic data is less than expected or the epidemic situation is repeated, there is a possibility of short-term correction of interest rate, but the upward trend of US bond interest rate will not change.
in the face of the sharp rise in US bond interest rates and the tightening of overseas liquidity, we believe that it is relatively unlikely that the Chinese market will repeat the "medium-term adjustment" in early 2021, which is due to three important changes in the current macro environment compared with early 2021:
Risk premium increases and stock market resilience increases: we use risk premium to measure asset valuation and find that risk premium can more accurately predict the performance of stocks and bonds in the Chinese market in the next year . The prediction accuracy [1] in the past five years is 66% and that in 2021 is 92% (chart 5-chart 6). From March 2020 to early 2021, the CSI 300 index increased by more than 60% and the interest rate of ten-year Treasury bonds increased by 70bp over the same period, resulting in the overvaluation of stocks relative to bonds. At the beginning of 2021, the risk premium was compressed to about 2.5, suggesting that stocks may significantly outperform bonds in 2021 (chart 7). The high stock valuation made the market more sensitive to negative shocks, and finally began the "medium-term adjustment" under the catalysis of the sharp rise in US bond interest rates. In 2021, the CSI 300 index only recorded a return of - 5%, and the excess return relative to the bond market was - 10%. In 2022, the market valuation level has changed significantly compared with the beginning of 2021. At present, the valuation of a shares has been more reasonable, and the risk premium has increased to 4.4 , reflecting that stocks may significantly outperform bonds in 2022 . from the perspective of P / E ratio, the current overall valuation of A-Shares is near the historical average (Chart 8), but lower than that of major overseas markets. the valuation advantage may reduce the downward space for Chinese stocks to tighten overseas liquidity and increase the upward space for China's "steady growth" policy support.
Loose monetary policy supports downward interest rate: in early 2021, when China's monetary policy tightened, some officials of the central bank pointed out the deviation between the prosperity of the stock market and the downward economic fundamentals, and believed that the monetary policy "needs to be moderately shifted" [2]. At the same time, the central bank continuously returned net funds, which triggered the market's concern about the shift of liquidity policy, and the capital interest rate increased significantly (chart 12). Different from last year, the current policy has a clear intention of "stable growth", and we believe that monetary policy is expected to be further relaxed : on December 20, the central bank lowered the one-year LPR, and the subsequent regular meeting of the monetary policy committee in the fourth quarter stressed that "give full play to the dual functions of the aggregate and structure of monetary policy tools", and the current inter-bank interest rate level is within a reasonable range. Looking ahead, in the context of steady growth, fiscal easing and risk prevention, a loose monetary environment may be a necessary condition to achieve policy objectives and support China's interest rate to further decline.
The improvement of the economic cycle determines the general trend of the market: we use the filtering model to measure the position of the economic cycle of major countries in the world (Figure 11): at the beginning of 2021, China's economy was "first in first out", the economy has recovered to the cycle high point, and then the economy continued to decline. Due to the weakening of endogenous economic growth momentum, stock market returns tend to decline relatively, and the sharp rise in US bond interest rate is more of a catalyst for market adjustment. In 2022, with the continuous introduction of the "stable growth" policy, we believe that China's economic cycle will gradually transition from downward to stabilization . The "policy bottom" may have appeared at the end of last year, and the "market bottom" and "economic bottom" may gradually usher in the first half of 2022. In this context, although peripheral liquidity is tightened, the relative improvement of China's own economic fundamentals may be the main trading line of the Chinese market. we maintain the judgment in the outlook for major asset allocation in 2022: making progress while maintaining stability, and suggest to be optimistic about the Chinese market and over allocate Chinese stocks and interest rate bonds.
In our theme report, how do us bond interest rates affect the Chinese market A systematic framework (Chart 13) is established to calculate the direction and intensity of the impact of US bond interest rate on China's stock and bond markets through three transmission channels: macro, capital and emotion.
With the effect of China's simultaneous interpreting of different transmission channels, we can get the net impact of US bond interest rate on China's assets .
We find that the interest rate linkage between China and the United States is mainly the result of the synchronization of economic cycles between China and the United States (Chart 14) . under the background of obvious dislocation of China US economic cycle, China's interest rate may maintain a downward trend .
If the rise of US bond interest rate more reflects the monetary tightening than expected, it may form dual pressure on China's stock market through capital channels and emotional channels. Due to the relatively weak transmission strength of these two channels (chart 16-chart 19), the pressure of the rise of US bond interest rate on China's stock index may be relatively limited . Compared with external disturbances, we believe that the "steady growth" policy and China itself have a greater impact on a shares.
Suggestions on asset allocation of major categories in January
We ranked the performance of major categories of assets in January as follows: China stocks > China bonds > overseas stocks / gold / commodities > overseas bonds. specific configuration suggestions are as follows:
Chinese stocks: a stocks are moderately over allocated in the short term with "stable growth" as the main line, and turn to standard allocation in the medium term, with a growth style; Hong Kong stocks are expected to return to the mean value, and it is recommended to over allocate
In the short term, China's stock market is supported by three factors: macro policy, liquidity and Valuation:
At the policy level, the central political work conference in December defined the tone of "steady growth" of the policy. Recently, the successive convening of the local two sessions is expected to promote the gradual implementation of the details of the "steady growth" policy. In the monthly report on asset allocation of major categories (2021-12): grasping the key policy window, we reviewed the central economic work conference in the past 15 years and found that the trend of the stock market was relatively differentiated within one month after the conference, 1-2 the upward trend was determined after one month, and the stock market rose more in the year of "steady growth" after about one quarter.
In terms of liquidity, the credit pulse has been ahead of China's stock market for about six months. The credit pulse entered the upward range last May. We expect to build a peak in mid-2022, which corresponds to the possibility that China's stock market may usher in phased opportunities in early 2022 (Chart 21).
At the valuation level, the current valuation of China's stock market is lower than that of overseas markets. A shares are generally near the historical average. At the same time, the contradiction between structural overvaluation has been resolved, and the valuation of Hong Kong shares is lower than the historical average. At the same time, our risk premium model shows that the annual relative allocation value of a shares 2022 is better than that of bonds.
In addition, January is the Spring Festival holiday. We found that there is an obvious "Spring Festival effect" in the Chinese market. The stock market tends to perform better in the 20 trading days before and after the Spring Festival (Chart 22). Based on the above factors, we suggest to grasp the oversupply of China's stock market in 3-6 months, pay attention to the relevant industrial chains of "stable growth", such as construction, building materials, home furnishings, etc., and recommend the relevant sectors of agriculture, forestry, animal husbandry and fishery that are about to usher in an inflection point (industry configuration monthly report: Taking "stable growth" as the main line). Hong Kong stocks may still be flat before and after the Spring Festival. It is suggested to wait for the gradual recovery of market sentiment. In the medium term, we should pay attention to the sectors with comparative advantages in valuation and benefiting from "stable growth", such as some finance, real estate, property management, and middle and downstream consumption sectors (weekly report on overseas Chinese stock strategy: expected return to the mean value in 2022).
overseas assets: reduced from over allocation to standard allocation; Balanced allocation of developed markets, low allocation of emerging markets except China
Dragged down by multiple factors such as high inflation, supply chain bottlenecks and labor shortage, the US economy has crossed the high point of mom recovery, and the recovery slope may gradually slow down. In this context, the tightening of overseas liquidity may disturb the overvalued overseas stock market. After the release of the minutes of the FOMC meeting of the Federal Reserve, the US bond interest rate accelerated upward, and the market expectation of the Federal Reserve accelerating the tightening of liquidity was strengthened. At present, the US bond interest rate broke through the high since May and reached 1.73%, causing the decline of overvalued us stocks. We judge that the return of overseas risk assets may decline and the adjustment risk may rise. We suggest that overseas assets should be kept in the standard configuration , and the allocation route should be changed to diversify the portfolio risk. If overseas stock indexes continue to rise, there is more room for economic and asset prices in Europe, Japan and other countries to repair, and the stock market may be dominated by catch-up effect. If the "stagflation" environment deteriorates, the global market will adjust significantly, and the US dollar assets are generally more resilient, but the US "fiscal cliff" will bring more variables to the comparative advantage of US dollar assets. We hold a neutral view on the market ranking of developed countries and suggest a balanced allocation and diversification of risk .
At the same time, some emerging markets are facing multiple pressures such as runaway inflation, exchange rate depreciation, foreign exchange loss, high debt and repeated epidemics, which may be the "most vulnerable link" of the global market under the tightening environment of overseas liquidity. It is suggested to maintain low allocation.
interest rate debt: there is still room for decline. It is recommended to moderately over allocate
In line with the "steady growth" policy, the central bank lowered the reserve requirement again and lowered the lpr1 one-year interest rate in December 2021. The monetary policy was loose, driving the interest rate down significantly. We judge that monetary policy may continue to be loose in the future, mainly because the real economy still faces great downward pressure in the short term, and the continued upside down of bill interest rate and dr007 interest rate at the end of the year also reflects the weak endogenous financing demand. According to the prediction of CICC macro group, the possibility of further RRR and interest rate reduction in the early first quarter of this year is not ruled out. The monetary policy adjustment will open space for the downward trend of interest rates, and the overall macro environment is still conducive to the bond market.
In terms of risk, the Ministry of Finance issued a new special debt limit of 1.46 trillion yuan in advance, requiring all localities to issue and use early in the first quarter of 2022, superimposing the liquidity pressure caused by the Spring Festival effect, which may have a certain disturbance to the interest rate. However, China's rich monetary policy tools and sufficient space are conducive to ironing out short-term liquidity fluctuations. Under the background of "no speculation in housing and housing" and the pressure of local government debt, the financing capacity of real estate and infrastructure debt is still limited. The lack of high interest assets leads to the shrinking interest rate spread of the financial system and the lack of bank lending power, which may affect the effect and scale of this round of "steady growth" policy, Thus, the window of counter cyclical adjustment of "wide currency" is extended. We predict that the credit pulse will continue to rise, or peak in the second quarter of this year, and the corresponding interest rate may maintain a downward trend in the next 1-3 months.
At present, China's economic cycle is obviously misaligned with overseas. The tightening of overseas liquidity is mainly due to the large inflationary pressure. China's PPI is expected to fall in 2022, and the inflationary pressure is generally controllable, which reduces the pressure of monetary policy easing. The impact of overseas liquidity tightening on China's interest rate may be relatively limited (how does US bond interest rate affect the Chinese market?). it is recommended to continue to over allocate interest rate bonds.
Credit Debt: it is recommended to configure
With the introduction of China's "steady growth" policy, the monetary policy will remain moderately loose, the credit pulse will continue to rise, and the gradual stabilization of market confidence may lead to the marginal improvement of enterprise profitability or be conducive to the performance of credit bonds; However, at present, the real estate policy has not been significantly relaxed, and the land transfer income in some regions has declined, resulting in the obvious differentiation of the refinancing ability of urban investment. The selling of Lanzhou urban investment bonds in December reflects the fluctuation risk of weak urban investment valuation, and the transformation of financial true net worth may further aggravate the fluctuation of the credit bond market. it is suggested that the standard configuration should be used to control the risk .
commodities: gradually reduce the proportion of commodity allocation
In the monthly report on major asset allocation (2021-12): grasping the key policy window, we suggested that China's "steady growth" policy and the marginal relief of overseas epidemic may be good for commodity prices in the short term, the commodity performance in the past month was in line with our expectations : the setting tone of China's "steady growth" boosted the demand expectation of some commodities, Existing evidence also shows that Omicron's symptoms are significantly reduced compared with delta. Superimposed on the weather and Geopolitics in December, some commodity supply premium risks rise again, forming a certain support for commodity prices. Looking forward to the future, we believe that the medium and long-term logic of commodity prices is still the gradual easing of the contradiction between supply and demand , which has downward pressure on commodity prices: under the background of high inflation, the tightening pace of overseas liquidity with the Federal Reserve as the wind vane may accelerate, and China's real estate regulation policy has not been significantly relaxed under the background of "stable growth", Global commodity demand may weaken; On the supply side, although seasonal factors may bring short-term disturbances, and there are uncertainties in geopolitics and epidemic trend, the global commodity inventory is still on the repair path, and the supply pressure may fall in the future. Breakdown of commodity varieties:
1) among energy commodities, the crude oil market may be trading in the short term, and the demand repair caused by the mild symptoms of Omicron epidemic is expected. In the future, aviation kerosene repair may become the last "Puzzle" of oil price rise. However, since there is still no inflection point for new confirmed cases in the world at this stage, the epidemic prevention restrictions of European countries have also been upgraded again, and the demand repair process may be delayed, With the marginal increase of capital expenditure, the rhythm of crude oil production resumption will be steadily promoted. CICC commodity group predicts that OPEC + crude oil production may return to the pre epidemic level in the second quarter of this year, and the space for oil price rise in the future may be relatively limited; The price of natural gas may be greatly affected by the supply risk in the short term, especially the European natural gas is still in the peak consumption season. The low inventory amplifies the disturbance caused by weather and geopolitics. In the future, with the seasonal weakening of demand and the easing of the contradiction between supply and demand, the price may fall; Under the guidance of China's "guaranteed supply and favorable price", coal prices have decreased, inventory levels have improved significantly, China's economic momentum is still weak, and prices may still fluctuate downward in the future.
2) in terms of industrial metals, with the introduction of China's "steady growth" policy, the demand for ferrous metals is expected to be boosted. However, the fundamentals are characterized by off-season due to seasonal factors, and the real estate regulation policy has not been significantly relaxed, so the price may still be under pressure in the future; In the short term, non-ferrous metals may be supported by the production reduction of European smelters, but with the gradual decline of European electricity prices, the pressure on the supply side may be effectively relieved, thus restricting the upward space of prices.
Gold: recommended standard
Under the market expectation of accelerated tightening of the Fed's policy, the long-term interest rate of US bonds has risen rapidly recently, which is mainly driven by the rise of real interest rate, and the inflation expectation has dropped. We believe that this "atypical" interest rate hike cycle will form a sustained thrust on US bond interest rates, the inflationary pressure may gradually ease in the future, and the rise of real interest rates will significantly put pressure on gold prices; However, due to some long-term structural factors in overseas inflation and great uncertainty in the trend of the epidemic, if the policy effect is less than expected or the epidemic situation worsens significantly, it may suppress the risk appetite of the market again, thus supporting the gold price. considering the benefits and risks, we maintain the standard gold.
Performance review of major assets in December
The overall ranking of global asset performance in December is: commodities > overseas stocks > Gold > China bonds > China stocks > overseas bonds. in December, the main line of market transactions shifted from epidemic to policy. The central economic work conference of China set the tone of "stable growth". The people's Bank of China announced the reduction of reserve requirements and the reduction of lpr1 one-year interest rate in December. The easing of monetary policy led to the decline of interest rate. On the contrary, under the pressure of overseas sustained inflation, the Federal Reserve announced to accelerate taper at the FOMC meeting in December, In the scatter chart, the expectation of raising interest rates in 2022 was raised to three times. The tightening of liquidity led to the rapid rise of US bond interest rates. In terms of country allocation, although the developed market outperformed the Chinese market, it may more reflect the valuation correction after the withdrawal of the developed market in November. Based on the performance from November to December, as well as the return and volatility of assets, Chinese assets are still dominant. Finally, benefiting from China's "steady growth" policy and the marginal easing of epidemic concerns, commodity prices fluctuated upward throughout the month.
From the perspective of asset segmentation:
1) among stocks, developed markets outperformed emerging markets, with European stock markets led by 5.6% and U.S. stocks rising by 3.6% supported by the "catch-up effect". Emerging markets (except China) were generally under pressure under the background of the obvious acceleration of overseas liquidity tightening and China's inflation, especially Turkey's stock market fused one after another in December, This confirms our judgment that emerging markets may be the "most vulnerable link" (2022 broad asset allocation Outlook: seeking progress while maintaining stability). In China's A-share market, although steady growth has gradually formed a market consensus, affected by factors such as short-term economic downward pressure and repeated epidemics, the market performance is relatively sluggish, closing down 1.8% in the whole month, of which the partial growth style is significantly corrected, the gem fell more than 10% in the whole month, the new energy vehicle industry chain weakened due to multiple factors, and the power equipment, new energy and non-ferrous metals fell significantly, Household appliances related to steady growth performed well, and "meta universe" related fields such as the media sector also rose more.
2) in bonds, under the background of the dislocation of China US economic cycle, monetary policy is "loose and tight", China US interest rates continue to differentiate, and the long-term interest rate of US bonds is about 30bp higher than the low in early December, which is mainly driven by the rise of real interest rate and term premium, which is consistent with our prediction in the monthly report on major asset allocation (2021-12): grasping the key policy window; China's interest rate fell under the influence of the central bank's RRR reduction and LPR reduction, especially when it hit 2.77% at the end of the month, about 10bp lower than the high at the beginning of the month; In terms of credit bonds, China's credit spreads have widened, and overseas credit spreads have generally narrowed.
3) among commodities, the CRB index rose by 7.3%, mainly driven by the rise in the price of energy products, of which the price of crude oil rose by 15.9% driven by the expected repair of aviation kerosene, Shenzhen Agricultural Products Group Co.Ltd(000061) and the supply risk increased due to the enhancement of weather disturbance factors, with a shock rise of 1.5% in the whole month. In China, under the guidance of the policy of "ensuring supply and favorable price", coal inventories continued to repair, coal prices continued to fall, power coal fell 27.5%, black series continued to show off-season characteristics, and rebar decreased slightly by 0.8%.
[1] prediction accuracy is defined as R2 of linear regression of return on assets to current risk premium in the next year
(source: CICC strategy)
