The following article comes from Liuli Investment News, the author of which is Investment News
Hong Hao is a partner and chief economist of Sirui Group, and a director of China Chief Economist Forum
In the afternoon of today (May 22), Hong Hao, chief economist of Sirui Group, shared his views on the recent real estate policy and stock market at the 13th BRICS Forum under the theme of "Two way travel: the danger and opportunity of China's real estate asset management from a global perspective".
Hong Hao said that from the stock market, the market is on the edge of restlessness.
We just need to put a little spark into the dry firewood, and the fire will rise.
The epic policy of the real estate industry may ease some downward pressure, but it may not fundamentally change the pattern. Of course, we do not rule out that there are more "moves".
In the current environment, we have taken the first step of "big moves", including reducing the deposit reserve ratio and interest rate, but this is clearly only the first step of rescue measures.
Compared with the water release efforts of the Bank of America, the European Central Bank and the Bank of Japan, the growth multiple of China's balance sheet is far lower than that of other major economies.
Today, the yield of super long government bonds dropped to 1.5%, which means that the market believes that if the real estate problem is not solved, our long-term inflation prospects may become lower and lower.
In the context of continuous low inflation and the central bank has never conducted quantitative easing in the past decade or so, we have room, policy environment and demand for quantitative easing.
It is conceivable that our central government will become the starting point of the next economic cycle with a very clean balance sheet.
The investment newspaper (liulishidian) sorted out the essence of Hong Hao's sharing as follows:
Where has liquidity gone?
This is the biggest question
Now the market is changing very rapidly. Before the Lunar New Year, Hong Kong shares and A-share markets ranked lower and worst among the major markets in the world.
However, since late April, the situation has changed significantly, with Hong Kong shares leaping ahead of major global indexes.
The A-share market also rose from the low point before the Spring Festival, about 2600 points, to 3200 points, an increase of almost 600 points, about 20%.
For any index, this is a significant rebound.
There are many reasons for this, and we will not elaborate on them.
But the key question at present is that after a series of epic policies have been introduced in the real estate industry,
Including lowering the mortgage interest rate, lowering the down payment ratio to the lowest level in history, and easing the purchase restriction policy in many cities;
Even cities like Nanjing have introduced measures such as giving away hukou for house purchase, which reminds people of the grand occasion of Shanghai in 2008.
Will these policies change the real estate industry, the main driving force of China's economic growth in the past 20 years?
At the same time, in the past three years, everyone said that the People's Bank of China has released a lot of water, and M2 has reached 300 trillion yuan,
At the same time, the deposit reserve ratio of banks and the yield of long-term treasury bonds have reached historical lows,
Even the long-term ten-year treasury bond yield has kept hitting record lows,
Then why hasn't our traditional sense of liquidity become the driving force for the rise of the stock market and the housing market?
Where has all this liquidity gone?
I think this is the biggest question.
The market is on the edge of restlessness
It only takes a little spark to ignite the market
We compare several major macro liquidity indicators with the operating direction of the stock market.
The red line represents the Wanda All A index, and the blue line represents China's M2 money supply, trade surplus balance and current account.
Historically, these liquidity indicators and stock market indicators have basically operated synchronously, moving in the same direction.
This includes 6000 bubbles in 2007 and 5000 bubbles in 2015.
In most of the time, we have seen that liquidity indicators and stock market indicators go hand in hand until 2021.
In 2021, we found a very interesting phenomenon.
In 2021, the total sales volume of China's real estate market will reach 18 trillion yuan;
The sales volume of real estate in the first quarter of this year was about 190 million yuan, and about 8 trillion yuan after annualization;
Compared with the peak in 2021, the sales volume dropped by more than half.
However, these three years are also the time when we put the most water, which is unprecedented both in terms of the cost of capital and the macro mobility of the whole society.
At the same time, the downturn in the real estate market is unprecedented.
By April, the sales index of the top 100 real estate enterprises had dropped by nearly 40% year on year, some even more than half. The situation was very serious, which was the background of this epic rescue policy.
After discharging water, the market has also risen recently.
Everyone is in a high mood because we haven't seen such an increase for a long time.
The stock market affects the whole body.
The stock market is the best indicator of sentiment.
We have various indicators to measure confidence and emotion,
For example, consumer sentiment, manufacturers' views on the future in PMI, etc. are all indicators obtained through questionnaires.
But the biggest problem with these indicators is that they are lagging behind, and in the current environment, people may not have much time and mood to fill in these questionnaires.
Therefore, they may not really reflect our psychological activities.
But there are quotations in the stock market every minute,
For example, today we saw a 30-year treasury bond due in May 2024. Its yield suddenly dropped from 2.2% or 2.3% to 1.5%, and its price jumped nearly 10 points.
These circumstances tell us that the market is on the edge of restlessness.
We just need to put a little spark into the dry firewood, and the dry firewood will become fiery. This is what we see in the stock market now.
Liquidity indicators are rising, even hitting a record high.
For example, our deposit scale has reached 300 trillion yuan;
However, our All A Index is still on the long-term trend line. Although it has rebounded recently, it still runs along the long-term trend line.
The worse the quality, the stronger the rebound
In some Hong Kong stocks, the real estate stock has increased 2-3 times
Today, the real estate sector rose about 1%, up about 30% from the bottom.
If you are a Hong Kong Chinese dollar high-yield bond, that is, the so-called junk bond, then these are basically doubled.
Some of Hong Kong listed inner house stocks have roughly doubled or tripled.
In your opinion, the poorer the quality and the easier it is to go bankrupt, the faster it will rebound. This is a low-quality rebound.
At the same time, if we look at the quality of each real estate developer before this rebound——
We use the credit spread of real estate developers to express their quality,
The lower the credit spread, that is, the closer the bond yield is to the benchmark yield of national debt, the better your quality will be.
Obviously, there are three levels of real estate developers.
One is the state-owned developers, such as China Resources and Yuexiu, which have very good quality and strong cash flow.
The second is the semi state-owned background, such as China Overseas.
Longhu is a private enterprise.
We can see that the credit spreads between private enterprises and private enterprises and developers with state-owned background are very wide, which we call government spread.
In this rebound, as we said, it was a low-quality rebound,
The worse the cash flow, the easier the default, and the higher the credit spread, the faster the rebound.
Because they have more space to repair.
Epic policy may
Cannot fundamentally change the pattern
In this new real estate pattern, we may have seen a historic peak,
From the total sales of 18 trillion yuan in 2021, we may have been far away from that peak,
Because at this peak, our urbanization rate has exceeded 60%, and the birth rate has been below 1.
If we want to keep the total social population unchanged, the birth rate of this society basically needs to reach about 1.4 to 1.5 to maintain the balance of the total social population.
The leverage ratio of our residents has reached 110% to 120%.
At the same time, our GDP growth rate is about 5%;
In 2008, it was about 10%, in 2015 it was about 6% to 7%, and now it is about 5%.
It has been 26 years since the housing reform in 1998;
In the past 26 years, the per capita living area of Chinese people has increased from 5 square meters to 41.5 square meters now;
The per capita living area of urban population has also increased from 3 to 4 square meters to 36.5 square meters.
The average household population in China is about 3.1, with 36.5 square meters per person. Basically, each household is a residence of more than 100 square meters, and the living conditions are very good.
By the way, the per capita living area in Hong Kong is less than 7 square meters.
So, this is a very big change.
In the past 26 years, we may have achieved development that many developed countries cannot imagine, from a developing country to a moderately developed country, or even higher level.
So this time, we need to go out of stock, we need to repair the real estate, and we also need to guarantee the delivery of the house,
The challenges we face must be greater than those in 2015 and 2016,
The overall real estate inventory is about 26 months.
Assuming that we can destock at the current rate, it will take us about 26 months.
Under normal circumstances, the inventory duration of each real estate project is about 18 months.
Therefore, the challenges we are facing are relatively large.
The epic policy may ease some downward pressure, but it may not fundamentally change the pattern. Of course, we do not rule out more "moves".
"Big move" of interest rate and reserve ratio reduction
It's just the first rescue measure
Finally, to highlight, we have compared the expansion rate of all major central banks in the world since 2008.
Because the central bank expanded the balance sheet to produce base currency,
In the social circulation, the base currency is constantly expanding through bank lending behavior and people's purchase behavior, forming a broad money supply, namely M2, including deposits and cash in stock accounts, which is the broadest money supply.
If we compare the balance sheets of all global central banks, that is, the base money supply, from 2008 to now,
We see that compared with other central banks, although many people in the market say that the People's Bank of China has released 300 trillion yuan of water,
But in fact, the Bank of America, the European Central Bank and the Bank of Japan have far exceeded the Bank of China in terms of balance sheet growth multiples.
Therefore, in the current environment, we have taken the first step, including reducing the deposit reserve ratio and interest rate;
But obviously, this is only the first step of rescue measures.
China has space and policy environment
There is also a need for quantitative easing
As we just mentioned, the yield of super long government bonds hit 1.5% today,
This means that the whole market believes that if the real estate problem is not solved, our long-term inflation prospects may become lower and lower.
Therefore, you will see that the yield of long-term debt, especially long-term debt over 10 years, will keep hitting new lows.
At this time, it shows that for a long time in the future, because we will focus on solving the real estate problem, inflation will be very, very low, about zero.
Such an inflationary environment, combined with the global financial crisis of the past decade, our central bank did not recklessly release water——
We are less than half the balance sheet of the European Central Bank.
Therefore, this gives us a good space for quantitative easing.
By the way, China has never conducted quantitative easing before.
China's previous rescue actions, including the 4 trillion yuan in 2007, when we directly lowered interest rates, and at the same time through various government departments launched a variety of stimulus plans, adding up to a total of about 4 trillion yuan.
Chinese commercial banks are an extension of the central bank, controlling the credit of the whole society by regulating the deposit reserve ratio and loan interest rate of commercial banks.
But now we see that private demand for credit is very inactive.
We have seen the latest social finance data, so I will not say more.
Therefore, it is obvious that the central government is the main body that can borrow in the economy.
The balance sheet of our central government is also very clean, and the debt ratio is about 50%,
It is the lowest and cleanest balance sheet of all central governments in the world.
Therefore, it is conceivable that this year's narrow fiscal deficit will probably be about 3.2% and 3.5%, and it is not surprising that it will double to about 7%.
We have this space, this policy environment and this demand.
Therefore, the policy we see now is only a beginning, not an end.
From the description just now, we can clearly see the deviation between the money supply of the whole society and the trend of asset prices.
Where have these coins gone?
Private lending is becoming more and more ordinary.
But it is conceivable that our central government will become the starting point of the next economic cycle with a very clean balance sheet.
Our 1 trillion super long term national debt is just a tentative step.
