Since the fourth quarter of last year, China’s currency has continued to expand. Combined with the statement of the people’s Bank of China that “the macro leverage ratio will rise”, we expect that the growth difference between the total amount of money and the nominal GDP will become positive in the second quarter, which means that the macro residual liquidity is ending the contraction since the second quarter of last year and entering the expansion range again.
This turning point is of directional significance to the A-share market. In the contraction period of macro residual liquidity in history, A-shares will enter a bear market, and turning to the expansion range is often the sign of the end of the bear market.
At the same time, we also note that inter-bank interest rates, general loan interest rates and new deposit interest rates have reached record lows, and mortgage interest rates have also accelerated downward under the guidance of policies recently. Due to the improvement of macro liquidity and the decline of capital opportunity cost, the anti risk ability of A-share market to deal with external tightening is rising.
China’s focus may still be on economic concerns. However, during the epidemic period, we have seen that active fiscal policies such as tax reduction and fee reduction have effectively maintained the business resilience of micro enterprises (see strategy observation 11 “economy is resilient and currency is more active”). Through the central government’s leverage under the cooperation of monetary policy, hedging the deterioration of micro balance sheet has become the main tone of the policy.
