Article/Li Qilin, columnist of Sina Financial Opinion Leader (WeChat official account kopleader)
High grade credit bonds and interest rate varieties will continue to benefit from this round of asset shortage, and the carry interest strategy will still be a relatively superior strategy.
After the introduction of a number of policies for the stock market and private enterprises, bonds were suppressed by concerns about the recovery of risk appetite and the improvement of credit forgiveness effect. The downward speed of yields slowed down, and there was once an adjustment.
However, we believe that this is only a short-term fluctuation. There is still room for interest rates to decline in the next quarter or two, and bonds are still the first choice for the allocation of large categories of assets.
The core argument is that if the policy combination of "real estate urban investment control is not relaxed+private enterprises, small and micro enterprises, and credit extension" remains unchanged, the market may usher in the "asset shortage" of 2015-2016 again.
There was a shortage of assets in 2015-2016. The situation at both ends of assets and liabilities is that social finance has stabilized and recovered, and the real economy has created many high-yield assets.
However, the expansion of broad funds starting from wealth management+interbank arbitrage has driven the high flow of funds, making the expansion of debt funds of financial institutions faster than assets, and financial institutions have sustained pressure on allocation (Figure 1).
At present, the restriction and control of the debt side on broad funds are still in place, and the expansion speed is not as fast as before, but the quality, quantity and speed of asset expansion cannot be compared with the past.
At the asset end, there is no room for substantial expansion of the two major entities that can create high yield and high-quality assets: real estate and infrastructure.
Weak real estate expansion
Real estate, sales is everything. As long as sales are supported, the high turnover mode of "land acquisition - quick start - quick pre-sale - quick payment collection - land acquisition, quick start" of real estate enterprises can be maintained, and high-quality assets such as mortgage loans, real estate non-standard and credit can maintain sufficient growth.
But without sales, none of these exist. The inventory reduction rate slows down, the inventory sales ratio increases, and the logic of low inventory supporting the boom will be quickly falsified.
We are not optimistic about the expansion of real estate. The logic is that the sales boom is unsustainable. Specifically, there are two points:
First, the logic of the primary and secondary price difference needs to be further examined. In hot cities, price limits for new houses can be obtained from statistical data, but the second-hand housing market is the market price formed by real supply and demand, which will be higher than the price limit.
Therefore, after 2017, when more and more hot cities took price limiting measures, there were more new arbitrage behaviors, and the sales of real estate enterprises were also supported.
But this arbitrage logic needs to be reexamined. On the supply side, after more than a year, more and more houses have entered the second-hand housing market from the new housing market. Even considering the restrictions on sales, the supply pressure of second-hand housing has accumulated a lot, just when to release it.
On the demand side, more speculators and buyers with rigid demand face: 1) 5.7% mortgage loan interest rate (which is still rising); 2) The regulation will continue and the real estate market will cool down. The expected combination will choose to wait for the further decline of house prices or the reduction of mortgage rates to copy the bottom. In the short and medium term, demand is weakening.
Changes in different directions at both ends of supply and demand will make the second-hand housing market more desolate, narrow the difference between the prices of primary and secondary housing, hit the demand for new housing arbitrage, and then directly impact the sales of real estate enterprises.
Second, the monetization of resettlement in the shantytown reform has ebbed. The shed reconstruction has given cash to the relocated households in the third and fourth line, which has once brought strong demand for rigid and improved housing.
However, if the proportion of monetized resettlement for shantytown reconstruction declines, and the expected future income of residents declines (Figure 4), more leverage and costs should be paid to buy houses (speculation), and the sales scale of new houses in third and fourth tier cities is difficult to maintain.
We estimate that if the premise is that 4.6 million housing units will be renovated in 2019 and the proportion of monetized resettlement will be reduced to 40%, the sales area of residential buildings in China next year will be 90 million square meters less than that in 2018, and the driving effect on sales will be significantly weaker than that in 2016 and 2017. (Figure 5)
If the real estate expansion is hopeless, the demand for steel, cement, building materials and other cyclical products downstream of its industrial chain will also be unsupported. In addition, environmental protection production restriction will no longer be uniform, and the supply side expansion space of Beijing Tianjin Hebei heating season environmental protection requirements will be relaxed, the supply and demand of cyclical products will gradually imbalance, and the bull market after three years will also usher in an inflection point.
Inadequate availability of capital construction funds
Infrastructure, another known demand for cyclical goods, has been issued many policy documents, but the following four factors determine that it is difficult to effectively expand this demand.
First, non-standard financing is still restricted. The new regulations on asset management and No. 55 documents hit trust channels and new regulations on entrusted loans, which have a great impact on low rated urban investment relying on non-standard financing, and the source of capital for infrastructure construction is limited.
Secondly, implicit debt pressure has significant constraints on local infrastructure expansion. At present, there is no authoritative data release on the scale of implicit debt, but the scale estimated by various institutions is very large.
We refer to the report of an official authoritative think tank, which believes that the debt of local financing platforms at the end of 2017 was about 3 billion yuan, while the stock of urban investment bonds at that time was only 7.1 trillion yuan.
Calculated at an average interest rate of 7%, this area needs to pay 2.1 trillion yuan of interest, accounting for 9.1% of the local government's general public budget expenditure and government fund expenditure in 2017.
Third, local debt violations are subject to "lifelong accountability and counter investigation", Local officials are not so motivated in infrastructure construction. According to our research, local governments and urban investment institutions give priority to the repayment of existing debts, especially urban investment bonds, but are not active in new projects.
Finally, the activation of infrastructure investment also requires the cooperation of land finance, Give play to the role of land as a credit accelerator. This requires the expectation of stable and rising house prices, but it is obviously inconsistent with the current policy keynote.
Compared with historical experience, the risk-free rate of return is still at a high level, house prices also lack the basis for rising, and the credit accelerator is difficult to start.
Given the weak expansion power of infrastructure and real estate, we can't expect the manufacturing industry to have a sustained expansion power, which will bring a substantial boost to the economy and provide sufficient high-quality assets for financial institutions.
If we take apart the manufacturing investment and private investment this year, we can find that the two major items with the fastest and highest growth rate are:
1) The middle and upper reaches benefit from the cyclical industry of supply side reform; 2) Downstream emerging manufacturing industries such as computer, communication electronic equipment, electrical machinery and apparatus.
As mentioned above, the former is the demander in the real estate infrastructure industry chain, and the capacity expansion mainly comes from the demand resilience of the upstream real estate and the demand for equipment renewal and technological transformation supported by high profits and abundant cash flow (Figure 9).
When the resilience of real estate declines and demand weakens, the growth rate of high profits under the support of high prices declines, and technological transformation and equipment upgrading are completed, these industries are difficult to form a larger expansion even facing the favorable stimulus of other policies.
The latter is closely related to external demand, and their export delivery value accounts for more than 50% of the total export delivery value.
Now, although there is hope for improvement in the trade conflict between China and the United States, the follow-up results are still uncertain. The results of the mid-term elections in the United States and how long the economy can last at the top of the cycle also need further observation.
In this case, if the authorities want to continue to introduce policies to boost the economy, the premise is to continue to fill the liabilities of financial institutions.
Only in this way can the total amount of funds from financial institutions infiltrate into entities as fully as possible, and the repression of risk-free returns on entities will be further weakened.
Therefore, before the substantial expansion of assets, there will be a period of advance in the expansion of liabilities.
In this leading interval, because the desire for physical expansion needs to be accumulated, credit risk is still high, and high-quality assets with high returns are still lacking, financial institutions will have an "asset shortage" with liabilities but no high-quality assets.
However, unlike 2015-2016, the bonds that benefited from this asset shortage are no longer low rated and high coupon credits, because the nature of debt funds has changed significantly.
On the one hand, the main force of this debt expansion is on the bank's balance sheet, which stems from the fine-tuning of monetary policy;
Second, the internal structure of broad funds has changed. The expected return products that used to occupy the mainstream have shrunk, and the products that prefer liquidity have begun to appear more widely.
1) Banks choose to buy broad funds for their own operation, and begin to prefer tax free asset management products with good liquidity that are more in line with regulatory requirements, such as money base and bond base;
2) Under the pressure of net worth transformation and capital pool removal, financial management non bank asset management began to transform into monetary products in order to cater to investors' low risk preference.
Therefore, high-grade credit bonds and interest rate varieties will continue to benefit from this round of asset shortage, and the carry interest strategy will still be a relatively superior strategy.
At the same time, under the protection of policies, investors can now choose some leading enterprises and urban investment companies with policy support to earn excess returns.
(About the author: Chief Economist of Lianxun Securities)
