Core view
The credit and social finance data in April 2022 were significantly lower than the market and our expectations. There are three reasons for the weakening of credit: 1. The epidemic has impacted residents’ consumption, house purchase behavior and enterprise production activities, and the credit supply has been blocked; 2. In the small month of credit, the marketing activities of stock loan projects after expiration are reduced, and it is difficult to continue the credit oversupply similar to that in January and March this year; 3. The impact of large-scale credit overdraft in the first quarter. We believe that the primary goal of the current monetary policy is to maintain steady growth and employment, maintain a stable and slightly loose policy tone, and the core of the follow-up policy is still to broaden credit. In particular, the weak credit and social finance data in April means that the central bank may increase its efforts to broaden credit, and the follow-up incremental policy can focus on incremental refinancing funds; For the interest rate cut, we suggest that the probability of LPR quotation will decline this month. The core focus is on the adjustment of loan and deposit interest rate mechanism described in the first quarter goods administration report of the central bank: “market interest rate + central bank guidance → LPR → loan interest rate” transmission mechanism; Determine the floating level of deposit interest rate marketization through bond interest rate and LPR. It is expected that the growth rate of follow-up credit and social finance is expected to fluctuate higher and the credit extension will be extended.
In terms of the equity market, we continue to focus on the multi stable growth chain in the short term, such as finance, real estate, construction and building materials. It is expected that A-Shares will show a structured market in the second half of the year. With the rebound of consumption hitting the bottom, we will focus on the investment value of the valuation and repair of the consumption sector. In addition, it is suggested to focus on the stabilization and upward trend of growth stocks after the US bond yield peaked. In terms of fixed income, it is expected that the yield of 10-year Treasury bonds will reach a high of 3.0% in the third quarter, fluctuate widely in the range of 2.7% – 3.0%, and the yield curve will return to steepening.
In April, the credit increased by 645.4 billion yuan, significantly lower than the market and our expectations
In April 2022, RMB loans increased by 645.4 billion yuan, with a year-on-year decrease of 823.1 billion yuan. The data is significantly lower than wind’s consensus expectation of 1.45 trillion and our forecast value of 1.3 trillion. The growth rate is also significantly lower than the previous value by 0.5 percentage points to 10.9%. We believe that there are three reasons for the decline in credit than expected: 1. The epidemic has impacted residents’ consumption and house purchase behavior, and loans in relevant fields have weakened significantly. Under the influence of the epidemic, the suspension of service industry, logistics obstruction, factor shortage and industrial shutdown also reduce the financing demand of enterprises; 2. In the small month of credit, the marketing activities of stock loan projects after expiration are reduced, and it is difficult to continue the credit oversupply similar to that in January and March this year; 3. The impact of large-scale credit overdraft in the first quarter.
In terms of structure, household loans decreased by 217 billion yuan in April, an increase of 745.3 billion yuan year-on-year. Among them, housing loans decreased by 60.5 billion yuan, a year-on-year decrease of 402.2 billion yuan; Consumer loans excluding housing loans decreased by 104.4 billion yuan, a year-on-year decrease of 186.1 billion yuan; Operating loans decreased by 52.1 billion yuan, a year-on-year decrease of 156.9 billion yuan. Corporate loans increased by 578.4 billion yuan, a year-on-year decrease of 176.8 billion yuan, of which short-term loans decreased by 19.9 billion yuan, medium and long-term loans increased by 265.2 billion yuan, a year-on-year decrease of 395.3 billion yuan, bill financing increased by 514.8 billion yuan, a year-on-year increase of 243.7 billion yuan. Loans from non banking financial institutions increased by 137.9 billion yuan, a year-on-year decrease of 15.3 billion yuan.
Overall, the year-on-year decrease in credit in April was 823.1 billion yuan, mainly from residential loans and medium and long-term loans of enterprises, with a year-on-year decrease of 745.3 billion yuan and 395.3 billion yuan respectively, while Bill Financing increased by 243.7 billion yuan year-on-year, while short-term and non bank loans of enterprises fluctuated little year-on-year. Among residential loans, housing loans decreased by 402.2 billion yuan year-on-year, with the largest range. It is mainly affected by the lack of residents’ willingness to buy houses and the epidemic. Mortgage loans need to go through offline mortgage registration. In the epidemic, many places enter static management, which hinders lending. Taking the data of the Yangtze River Delta as an example, the calculation data show that, From 2005 to 2019, the proportion of commercial housing sales area in the Yangtze River Delta (Shanghai, Jiangsu Province, Zhejiang Province and Anhui Province) in the whole country fluctuated steadily in the range of 16% – 22%, and the central area was about 19%. In April, the mortgage loan in Jiangsu, Zhejiang and Shanghai, which was greatly impacted by the epidemic, was limited or a certain negative drag on Residents’ housing loan data. In addition, we also believe that with the relaxation of epidemic control and the restoration of offline mortgage registration, this part of housing loans will also have a centralized and large-scale process, which will drive the recovery of data in subsequent months.
The substantial increase in bill financing in April reflected the bank’s “bill reversal” under the condition of insufficient effective credit demand. In late April, the spread between bill discount rate and inter-bank certificate of deposit interest rate decreased rapidly, and the verification effect of high-frequency data was good. We believe that the current trend of increasing short-term financing demand for small and medium-sized enterprises and the willingness to release short-term capital is expected to be driven by the gradual recovery of short-term loans and financing for small and medium-sized enterprises in the second half of the year, which is expected to be driven by the pessimistic demand for short-term loans and financing for small and medium-sized enterprises Urban renewal will be an important credit carrier.
In April, non bank loans increased by 137.9 billion yuan, which is in line with the seasonality. In the small month of credit, banks’ inter-bank lending to non bank funds will be relatively loose. At the same time, the inter-bank market liquidity in April is also relatively abundant. The large scale of non bank loans also leads to a significantly smaller new scale of social finance loans than RMB loans.
Social finance added 910.2 billion yuan in April, significantly lower than the market and our expectations
In April, the increment of social financing scale was 910.2 billion yuan, 946.8 billion yuan less than the same period last year, which was significantly lower than the 2 trillion expected by wind and our forecast value of 1.66 trillion. The growth rate fell sharply by 0.4 percentage points to 10.2%. Structurally, RMB loans with social finance caliber increased by 361.6 billion, with a year-on-year decrease of 922.4 billion yuan, which is the main drag on the year-on-year fluctuation of social finance. Except for credit, the year-on-year fluctuation range of other projects is small. In April, government bonds increased by 391.2 billion yuan, and the issuance of special bonds slowed down, but it has accelerated in May. As of May 13, the net financing of government bonds tracked by our high frequency has approached 500 billion yuan. The policy requires that the issuance of most of this year’s special bonds be completed by the end of June. It is expected that there will be an average or nearly trillion net financing scale in May and June, which will support social finance; In April, corporate bond financing increased by 347.9 billion yuan and stock financing by 116.6 billion yuan, both of which were stable; Undiscounted bills decreased by 255.7 billion yuan, mainly affected by the economic downturn and the sharp increase in the amount of bills discounted; In April, trust loans decreased by 61.5 billion yuan, with a year-on-year decrease of 71.3 billion yuan, which is in line with our expectation. In 2022, the supervision of financing trust will continue, its net financing scale will remain negative, and the total amount will continue to drop, but it will maintain a decrease year-on-year; Entrusted loans decreased by 200 million yuan in April, with a year-on-year decrease of 21.1 billion yuan. 20182019 is the main time period for the decline of entrusted loans. With the gradual standardization of the industry, the data is expected to gradually stabilize in the future, and the annual probability will achieve a year-on-year decrease in 2022.
The growth rate of M2 and M1 both rebounded in line with expectations, mainly affected by the base
At the end of April, M2 growth increased significantly by 0.8 percentage points to 10.5%, basically in line with wind’s consensus expectation of 9.9% and our forecast of 10%. On the one hand, the upward data is affected by the low base in the same period last year, and also by the positive force of finance. In today’s data announcement, the central bank disclosed that “the progress of turning over the balance profits of the people’s Bank of China is moving forward. 800 billion yuan has been turned over since 2022, and the annual turned over profits will exceed 1.1 trillion yuan, directly enhancing the available financial resources of the government.
In April, fiscal deposits increased by 41 billion yuan, with a year-on-year decrease of 536.7 billion yuan, reflecting the coordination and linkage of monetary and fiscal policies, supporting the rescue of enterprises, stabilizing employment and ensuring people’s livelihood, and making joint efforts to stabilize the macro-economic market “. Therefore, we believe that the year-on-year decrease in fiscal deposits also promoted the upward growth of M2.
At the end of April, the growth rate of M1 increased by 0.4 percentage points to 5.1% compared with the previous value, which was close to our forecast value of 4.9%. The steady growth rate of M1 was mainly affected by the low base of last year. In addition, although the short-term economic vitality was impacted by the epidemic, the short-term loans and bill financing of enterprises increased year-on-year and were relatively stable in April, supporting the growth rate of M1.
At the end of April, the year-on-year growth rate of M0 was 11.4%, which continued to rise compared with the previous value of 9.9%. The data rebound was not in line with the seasonality, which was mainly affected by the epidemic. The higher growth rate of M0 was consistent with the data during the epidemic in 2020 and subsequent months. The epidemic impacted small and medium-sized entity sectors, unbalanced economic structure and increased demand for money, resulting in higher growth rate of M0.
It is expected that the core of the follow-up policy of the central bank will still broaden credit
The central bank raised in April’s financial data answer to reporters’ questions “We will give better play to the dual functions of monetary policy tools in terms of aggregate and structure, accelerate the implementation of policies and measures that have been introduced, and actively plan incremental policy tools to support economic operation within a reasonable range. First, we will stabilize the total amount of credit. We will comprehensively use a variety of monetary policy tools to maintain reasonable and sufficient liquidity and enhance the stability of total credit growth. Second, we will reduce financing costs. Third, we will strengthen support for key areas and weak links.” 。
We believe that the primary goal of the current monetary policy is to maintain steady growth and employment, and maintain a stable and slightly loose policy tone. The core of the monetary policy is still to broaden credit and promote the growth of credit and social finance. In particular, the weak credit and social finance data in April may mean that the central bank may increase its efforts to broaden credit. The central bank’s recent implementation of RRR reduction, the addition of a number of refinancing tools and the increase of refinancing rediscount line all point to wide credit. The follow-up incremental policies can still focus on the incremental refinancing funds.
For interest rate reduction, we believe that the adjustment of loan and deposit interest rate mechanism in the monetary policy implementation report for the first quarter of 2022 released by the central bank on May 9 deserves special attention, and suggests that the probability of LPR quotation will decline this month. Specifically, the central bank proposed in the goods administration report:
1. “Market interest rate + central bank guidance → LPR → loan interest rate” transmission mechanism. This mechanism means that the market interest rate plays an important forward-looking leading and influencing role in the formation of LPR quotation. Since the beginning of April, dr007 has continued to operate at a low level, and the center has moved down significantly. On the one hand, there is still a forward-looking signal of the probability of interest rate reduction by the central bank. We expect that there is still a probability of interest rate reduction until the renewal date of MLF on May 16. Of course, under the background that the monetary policy of developed economies has entered the tightening range, the central bank’s interest rate reduction operation is also facing a certain dilemma; On the other hand, the sharp decline of the market interest rate center will have an obvious traction on LPR under the above transmission mechanism, and the “central bank guidance” does not only mean “interest rate reduction” and “reserve requirement reduction” may also be included. The central bank’s reserve requirement reduction of 0.25 percentage points in April also plays a guiding role in LPR quotation. We expect that even if the central bank does not reduce the policy interest rate this month, the LPR quotation on the 20th will have a greater probability of decline.
2. In April this year, the central bank guided the interest rate self-discipline mechanism, established a market-oriented adjustment mechanism of deposit interest rate, and determined the upward level of marketization of deposit interest rate through bond interest rate and LPR. We believe that the mechanism adds more “market-oriented” elements to the pricing of deposit interest rate, which means that the market interest rate can not only effectively affect the benchmark loan interest rate LPR, but also further affect the pricing of deposit interest rate. It can also directly affect the deposit interest rate, guide banks to reduce the cost of liabilities, thus drive the reduction of enterprise financing costs, and help to promote credit easing.
As for the subsequent data performance of wide credit, we expect that the growth rates of credit and social finance are expected to fluctuate higher, and the wide credit will continue. The annual growth rates of the two are 22 trillion and 36.2 trillion, with the year-end growth rates of 11.4% and 11% respectively. It is expected that the growth rate of M2 will be 9.2% at the end of the year, and the growth rates of M2 and social finance will be slightly higher than the growth rate of nominal GDP to achieve a basic match.
In terms of the equity market, in the short term, we continue to look at the multi stable growth chain, such as finance, real estate, construction and building materials. It is expected that A-Shares will show a structured market in the second half of the year. With the rebound of consumption hitting the bottom, we will focus on the investment value of the valuation and repair of the consumption sector. In addition, we suggest to focus on the stabilization and upward trend of growth stocks after the US bond yield peaked. In terms of fixed income, it is expected that the yield of 10-year Treasury bonds will reach a high of 3.0% in the third quarter, fluctuate widely in the range of 2.7% – 3.0%, and the yield curve will return to steepening.
Risk tip: the international balance of payments entered the observation period in the second quarter. If the interest rate difference between China and the United States is further reversed sharply, it will trigger a negative cycle of large-scale capital outflow and exchange rate depreciation. Monetary policy may focus on the balance of payments.
