Key investment points
Core view: pay attention to the rhythm and space of economic repair. The reduction of LPR is not bad for the bond market.
The future is the accumulation of the present. Resumption of work and production, epidemic prevention policies and social mobility are directly related to market expectations and the effect of broad credit and steady growth. In April, the sharp decline of economic data made the steady growth of broad credit increase again. Following the first house interest rate cut on May 15, the five-year LPR was reduced by 15bp on May 20, and the attitude of wide credit and stable real estate was clear. In addition, this week’s steady growth measures are also reflected in finance, employment, digital economy and so on. The future is the accumulation of the present, and the recovery of the economic cycle deserves attention. In terms of resumption of work and production, according to the information of the economic data press conference of the state information office on May 16, among the more than 9000 Industrial Enterprises above Designated Size in Shanghai, the enterprises that have resumed work account for nearly 50%. On May 20, Shanghai issued the plan for resumption of work and production, which was promoted in three stages: the first stage is to focus on restoring the industrial chain and supply chain by May 21; The second stage, from May 22 to May 31, will expand the resumption of work and production; The third stage is to accelerate the full resumption of work and production after June 1. In terms of social mobility, the national congestion index we built this week recovered to 99.04% in the same period last year, recovering for three consecutive weeks. In terms of epidemic prevention policy, we still adhere to the policy of “dynamic clearing”, especially the epidemic prevention policy in the outbreak area of this round is relatively strict.
The 5-year LPR down regulation has both signal and practical significance. From the perspective of the driving factors of the reduction, policy promotion is the main reason, and the decline of deposit interest rate is the objective basis. Affected by the outbreak of this round of epidemic, the central government has repeatedly stressed that the policy should be advanced and sufficient, and actively planned incremental policy tools. On May 18, the Symposium on stabilizing growth, stabilizing market players and ensuring employment further proposed that the policies that have been issued should be put in place as soon as possible, that the new measures that are accurate can be used up, and that they can be released in May, so as to make the economy return to the normal track quickly. In April 2022, under the guidance of the central bank, the interest rate self-discipline mechanism established a market-oriented adjustment mechanism of deposit interest rate. The establishment of this mechanism can promote banks to track the changes of market interest rates, improve the market-oriented pricing ability of deposit interest rates, and maintain a benign competitive order in the deposit market. The mechanism has both flexible guidance and appropriate incentives for banks. In the last week of April, the weighted average interest rate of new deposits in financial institutions across the country was 2.37%, down 10 basis points from the previous week. Superimposed on the implementation of RRR reduction on April 25, it jointly promoted the unilateral reduction of LPR. From the perspective of the purpose of the reduction, it is mainly to promote medium and long-term loans, and the signal of stabilizing real estate is clear. From January to April this year, the overall scale of social financing is not low, especially in the first quarter, which reached the highest in nearly five years. However, there are two structural problems: the relatively low proportion of household loans and the relatively low proportion of medium and long-term loans of enterprises. The former indicates insufficient terminal demand, and the latter indicates that enterprises have insufficient expectations for the future and reduce capital expenditure. At the same time, the high interest rate difference between long-term and short-term loans also makes enterprises more inclined to short-term financing. For example, the interest rate difference between LPR in the first five years and LPR in the first year was reduced to a high of 90BP (75bp after the reduction). In the first quarter of this year, the general loan interest rate was still 258bp higher than the bill financing interest rate, which remained at a high level since 2015. In terms of real estate, the central bank has made clear the lower limit of the first mortgage of “lpr-20bp” on May 15. This LPR reduction will further reduce the purchase cost and release the reasonable demand for housing. At the same time, it is also of positive significance for real estate enterprises to finance and manage the credit risk of real estate enterprises. In terms of the reduction range, the five-year LPR was reduced by 15bp, which was the largest decline since August 2019. Under the requirements of the policy of “doing everything in May”, it showed the determination of the central bank to stabilize credit and reduce financing costs.
