Core view
The overall epidemic situation in China has continued to improve marginally, and the number of provinces with new local cases has fallen steadily below 10. In this context, high-frequency data show that the economy is continuing to recover. At the same time, the policy continues to relax, especially the real estate policy. In addition, the recent trend of US Treasury bonds is weak, and the yield of 10-year Treasury bonds fell by more than 40 BP to 2.78% from 3.2% of the high point. Overall, the recent changes in the situation are good for the stock market as a whole.
The epidemic situation continues to improve, and economic repair still needs time. This round of epidemic lasts for a long time, has a wide range of influence, involves large cities and strict prevention and control measures. Although the epidemic situation is continuing to improve, the severity of epidemic prevention is still at a high level, and economic repair will take time. Real estate, an important indicator of economic recovery, has a large gap between the transaction area of commercial housing and the same period in previous years, and the price is also weakening. The price index of new commercial housing in 70 large and medium-sized cities decreased by 0.1% year-on-year in April, turning negative for the first time in the year.
The monetary policy remained loose and the fiscal policy continued to develop. The central bank lowered the five-year lpr15 BP on May 20, exceeding market expectations. Combined with the policy of “adjusting differentiated housing credit policy and reducing the lower limit of the first house mortgage interest rate by 20 basis points” issued by the central bank on May 15, the central bank reflected its determination to stabilize the economy, especially the real estate market. In April, the broad budget revenue decreased significantly. On the one hand, the value-added tax rebate of about 800 billion yuan in that month was retained, on the other hand, it was related to the downturn of the real estate market, and the decline in the budget revenue of government funds widened. The decline in revenue led to the weakening of fiscal expenditure. However, from the perspective of the absolute amount of the broad fiscal deficit, the intention of fiscal power to maintain economic stability from January to April is obvious. In addition to the previously reported special bond issuance plan from May to June and the special treasury bonds widely discussed in the recent market, it is expected that the intensity of follow-up fiscal expenditure can be maintained.
A shares rebounded and US stocks weakened. In 2022, A-shares and Hong Kong shares continued to adjust. At present, they are less sensitive to bad news and have accumulated some rebound space. If the policy warm wind continues and the impact of the epidemic continues to ease, the stock market may continue to rebound, and the sectors with greater decline in the early stage may rebound more. In the short term, the core factor of the market is the epidemic evolution and steady growth. The height of this round of stock market rebound is closely related to it. Different from the marginal improvement expected by China’s capital market, there has been a transaction recession in the US capital market. Last week, US stocks fell, US bond yields fell sharply, and the upside down of China US interest rate spread eased slightly.
Outlook. With the support of marginal improvement of the epidemic situation and marginal relaxation of policies, the market showed an obvious oversold rebound. The sustainability of the rebound depends on whether the above two conditions continue and whether US debt is a drag. It is suggested to follow up on the basis of cautious optimism and respond flexibly. Treasury bond yields may remain low and volatile in the current range as a whole, and the market’s repair of economic expectations depends on the marginal improvement of the above two conditions.
Risk tip: the change of epidemic situation exceeded expectations, and the implementation of policies was less than expected
