This article is from WeChat official account:Fresh Capital (ID: freesvc) , author: Li Feng (Feng Shui capital founding partner), from the title figure: vision China


How will the global money flow in 2021? Which regions and countries, which industry sectors, and which assets will benefit in the medium and long term?

Recently, Feng Shu and Mr. Cai Yu who got it (the principal of “Cai Yu·Commercial Reference”) conducted two in-depth discussions , The topic revolves around the many recent changes in the financial market and the possible logic behind it. We have selected three of the main issues to expand in this article. There are observations and predictions, and we look forward to communicating with you.

  • What is the balance of stocks and debts? Why does the U.S. bond yield fluctuate, the global capital market will tremble three times?

  • How do you view the volatility of A shares and Hong Kong stocks?

  • How do you view the changes in the domestic capital market in the future?

Before entering the main text, share the main points first:

  • Liquidity(money) has always been between countries and regions, between industry sectors with different recovery momentum, and between assets(Stocks and Debts) make adjustments, rebalance and re-allocate.

  • No risk investmentCapital has previously absorbed most of the global capital. But in response to changes in interest rates, some of the funds will inevitably adjust their allocation ratios among risk-free, low-risk and high-risk assets. At the same time, because of the substantial expansion of liquidity, the result is that whether it is US stocks, A-shares or Hong Kong stocks, there has been a significant increase in the past for a long time.

  • Whether it is regional capital rebalancing or asset rebalancing, there will be a large amount of capital flow and rebalancing, which will inevitably cause market volatility. In the short term, if other regions have a greater economic rebound than China because of a low base or a larger short-term stimulus policy, these places may become destinations for big money to chase short-term benefits. Therefore, after the funds enter the Chinese mainland or Hong Kong, they will also go out again, causing stock market volatility.

  • By the third and fourth quarters of 2021, if there are no more uncertainties, big funds should shift from short-term goals such as “rapid rise” and “rebound” to choosing a long-term good seedling to cultivate. This means that big funds will return to economies or asset classes with longer-term growth potential.

  • The current policy background of “adhere to stability and do not make a sharp turn” means that my country can neither expand its debt on a large scale nor reduce its leverage too quickly. Therefore, in the long run, the capital market, which represents direct financing, will become more and more important. On the other hand, the degree of opening up of the domestic capital market is also increasing. This year, China’s capital market will attract more foreign capital inflows, but we must be alert to the possible impact of capital outflows.

1. Why does the US Treasury yield fluctuate, and the global capital market has to tremble three times?

On March 17, 2021, the Federal Reserve announcedThe interest rate resolution in March announced that it would maintain the target range of the federal funds rate between 0 and 0.25%. On March 18, during the European stock market, the yield on the 10-year benchmark US Treasury bond exceeded 1.70% for the first time since January 2020. The US stock market rose above 1.75% before the market, and then the three major US stock indexes collectively closed down. By March 19, the three major A-share stock indexes also experienced a collective decline.

Why does the global capital market tremble as soon as U.S. bond yields fluctuate?

We can split it into two questions to see:

1. Why do government bond yields fluctuate?

First understand what national debt is.

Usually, the treasury bonds of major global economies such as the United States and China will be regarded as the “anchor” for the pricing of assets, especially risky assets. Because there is almost no sovereign credit risk, the yield of this type of national debt is usually regarded as a “risk-free interest rate” and becomes the basis for asset pricing.

In other words, assuming that the national debt interest rate of a major economy country is 2%, then after any sum of funds is used to purchase the national debt, it can obtain an annual yield of 2% without any risk. We often say that the risks and returns in the investment field are proportional. In fact, it is calculated based on the pricing of risk-free investment.

However, because Treasury bonds can be traded, the yield of Treasury bonds will fluctuate. When you sell the treasury bonds you hold, you also sell the proceeds of the next few years to the other party.

For example, the U.S. began to cut interest rates in April 2020. If it is a national debt issued before the interest rate cut, assuming that the benchmark interest rate issued by the Federal Reserve at that time is 2%, then the interest rate for issuing national debt may be 2.5%. In April, in order to stimulate the economy, the Federal Reserve will lower the benchmark interest rate to between 0 and 0.25%. Then the coupon rate of the national debt issued in the current period will decrease accordingly.Such as falling to about 1.5%. In this way, for investors who hold treasury bonds issued before the interest rate cut, it is clear that the yield has increased.

In another situation, if investors are buying a large amount of U.S. Treasury bonds in order to avoid investment risks during the epidemic. However, because the United States printed too much money to stimulate the economy, over time, a large amount of liquidity brought inflation and price increases. If everyone expects that inflation will continue for a longer period of time, for example, between 2% and 4%, then the increase in the inflation rate of the Treasury bonds you previously bought at a 1.5% interest rate may exceed the bonds you hold. The nominal rate of return.

At this time, you may prefer to sell the national debt at a discount and use the money in exchange for investing in commodities or assets that can at least resist inflation in terms of yield. Therefore, the yield of national debt will rise.

2. How does the fluctuation of Treasury bond yield affect the stock market?

For ordinary people, investment funds are generally divided into three parts: fixed (live) period deposits placed in banks; banks Of wealth management products (commit to at least capital preservation); stocks or funds. The fluctuation of the yield of government bonds will affect the allocation structure of funds.

For example, when Yu’e Bao was first launched in 2013, its guaranteed annualized rate of return was once 4% to 5%, which was very good. When this low-risk investment can obtain a return of 4% to 5%, everyone’s expectation of the return of risky assets (such as stocks) is natural It will be higher.

Assuming you have 1 million funds for investment, how to allocate it among the three (deposits, capital-guaranteed wealth management, stocks or funds) , Basically depends on the lowest risk investment rate of return. If this rate of return is high enough, then you will have higher requirements for the return on the riskier investment, and if it cannot meet your requirements, you will decrease The scale of investment in risky assets.

However, the main source of funds in the capital market is professional institutions. Institutional managementThe funds can often reach hundreds of billions or even trillions of dollars. Most of these “big money” are allocated in low-risk assets, that is, debt.

However, since 2020, a special economic phenomenon has appeared-the “anchor” meaning of risk-free assets in pricing has been destroyed. This is because after the outbreak last year, most major economies in the world have adopted zero or even negative interest rate policies in order to stimulate the economy. This means that risk-free investment loses its meaning.

However, we have said that risk-free investment has previously absorbed most of the world’s capital. In response to changes in interest rates, some of the money will inevitably adjust its allocation ratio among the three different types of assets: no-risk, low-risk, and high-risk. This change has also been superimposed on the substantial expansion of liquidity. The result is as you can see: some time ago, whether it is US stocks, A-shares or Hong Kong stocks, there have been substantial increases in stock prices. This is the impact of U.S. bond interest rate fluctuations on the capital market.

The question is, How long will this “anchor failure” phenomenon last?

This question is currently difficult to answer. Compared with the 2008 financial crisis, the difference this time is that many countries have printed too much money in too short a time, but there are no huge underlying financial assets that need to be repaired, and most of the liabilities are at the national level. It is equivalent to that the Ministry of Finance directly borrows money from the Central Bank, and the borrowed money is directly distributed by the Ministry of Finance. Some are used to fight the epidemic, some are issued to the people to stimulate the economy, and some are used to buy other debts, including treasury bonds. And corporate bonds.

Take the United States as an example. The U.S. Congressional Budget Office (CBO) in February 2021 stated that its baseline estimates show that the U.S. public Debt will reach 21.019 trillion US dollars, equivalent to 102.3% of GDP.

The trouble behind this is that the country has borrowed a lot of money. If the interest rate is guided to rise, it means that the country’s financial costs will rise. Assuming that government debt is equivalent to GDP, then for every 1% increase in interest, the government will spend 1% of GDP to repay the money. The annual growth rate of GDP in most developed countries is within 3%.

The result of this is that the country cannot simply and easilyOtherwise, it is very likely that the country will not be able to repay the money; even if the country can repay the money, the increase in financial costs will also cause major problems for economic growth. This seems to be an “endless loop”.

So, what can be judged is that this cycle will last a long time, but it is still impossible to last forever.

Second, how do you view the volatility of A shares and Hong Kong stocks?

We once shared a point of view: At the end of 2020, one of the biggest changes is that most of the huge uncertainties that we have been forced to accept in the past two years have begun to gradually move towards relative certainty . After the inner certainty is enhanced, you will tend to make some longer-term decisions, and you will be more confident to understand some of the better growth, but you have not dared to try or are not familiar with the asset allocation before.

So we can see that gold, the stock market, and real estate in the United States have all developed very well recently. This is also the reason why the stock market and fund investment enthusiasm has soared some time ago.

At the same time, this change in asset allocation will also show certain regional characteristics. For example, if everyone has better expectations for China’s economic growth, theoretically if they have this ability and channel, they will be willing to allocate more assets in China; accordingly, if you are optimistic about the future of the United States or South Korea With economic recovery, you will also allocate assets in these regions.

For “big money”, it will usually be a global configuration, so when you are in doubt, you will first find what you are most sure of. This is also the reason why many stocks in the US and Chinese asset markets performed very well last year.

And when everyone’s certainty begins to generally increase, those “big money” will also begin to chase better investment returns, andWell, the good company will also be good.

Specifically in the capital market, Last year’s high-growth consumer goods industry, this year will continue to maintain high growth on top of a high base, there will be certain challenges; The industry that should theoretically grow last year, for example The non-essential industries that represent the direction of consumption upgrading, including culture, education, tourism, and entertainment, may grow more significantly this year, and may even make up for the two-year growth level at once.

3. How do you view the changes in the domestic capital market in the future?

1. China’s capital market is playing an increasingly important role

First, let’s look at the direct financing market.

On May 9, 2016, the People’s Daily published “Question about the general trend in the first quarter of the start-Authorities talk about the current Chinese economy”, in which the article officially put forward the five key tasks of “three eliminations, one reduction and one supplement”. These include “deleveraging”.

Why “deleverage”? From a macro perspective, according to a report issued by the International Finance Association in 2017, as of the end of the first quarter of that year, China’s total debt has exceeded three times its GDP. Debt roughly includes three parts: government liabilities, corporate liabilities of non-financial institutions, personal and household liabilities. According to data from the National Bureau of Statistics, China’s GDP will exceed 100 trillion for the first time in 2020.

Including the new asset management regulations in 2018 and strengthening the supervision of Internet financial institutions, etc., they are all manifestations of “deleveraging”. But in 2020, with the sudden outbreak of the epidemic, my country’s macro debt scale has risen again.

So we see that in January 2021, the SASAC said, “The next step will be to shift from reducing leverage to stabilizing leverage based on the results of three-year leverage reduction work to ensure that most companies’ debt ratios remain stable. As soon as possible, the debt ratio of high-debt subsidiaries will return to a reasonable level, and firmly hold the bottom line that no major debt risks will occur.” Then in February, the People’s Bank of China proposed that “a prudent monetary policy must be flexible, precise, reasonable and appropriate. Make a sharp turn, grasp the timeliness and effectiveness of policies, and handle the relationship between economic recovery and risk prevention.”

In other words, it is neither possible to expand debt on a large scale, nor to reduce leverage too quickly. This means that, in the long run, the capital market, which represents direct financing, will become more and more important.

2. China’s capital market will attract a large inflow of foreign capital, but we must be alert to the possible impact and impact of capital outflow

China’s capital market is gradually opening up to the outside world. On June 28, 2018, the National Development and Reform Commission and the Ministry of Commerce issued the “Special Management Measures for Foreign Investment Access (Negative List) (2018 Edition), Remove restrictions on the proportion of foreign shares held by banks and financial asset management companies, and treat both domestic and foreign investors equally; relax the upper limit on the proportion of foreign shares held by securities companies, fund management companies, futures companies, and life insurance companies to 51%, and no longer set them after three years limit. By 2021, the three-year period is approaching, and the degree of financial openness will become higher and higher.

While the domestic financial market is gradually opening up to the outside world, we are also facing a situation in which developed countries such as the United States release a large amount of liquidity in a short period of time. What is certain is that, as the only major economy in the world that will achieve positive growth in 2020, especially when the global low-risk or risk-free rate of return is extremely low, We will have a high probability of seeing global capital by 2021. Market money flows into China.

At this time, the question we are facing is how the money will go out when it comes, which is what we often call free flow and exchange under the capital account.

There is a huge system and policy problem behind this. When this money comes in, it will bring many benefits to our country’s overall financial system and structure. However, if the capital account implements complete free flow and free convertibility, once it flows away like a cloud, it will also give The system has a huge impact. We need them, but we must also be vigilant about them. This tests the ability to respond to and deal with policies.

3. Social investment will shift from holding physical assets to virtual assets

Another change that is taking place in China’s capital market is that social wealth has begun to move in the direction of economic or financial structural adjustment.

According to the financial statistics report for the whole year of 2020 released by the Central Bank in January 2021, as of the end of December 2020, the balance of household deposits in my country has reached 93.44 trillion. In fact, if we can guide the transformation of savings into investment and consumption, it will be of great help to my country’s economic growth. This can be understood as following the policy.

We can look back at 2020, and there are several data worthy of your attention. According to data from the National Bureau of Statistics, in 2020, the national per capita disposable income of residents will increase by 2.1% in real terms, which is basically in line with economic growth. However, the per capita consumption expenditure of Chinese residents in 2020 is 21,210 yuan, a year-on-year decrease of 4%.

To put it simply, everyone’s income has increased, but their spending has decreased. The uncertainty brought about by the epidemic is the main reason behind it.

If there is no epidemic situation, according to the current stage in China, a change that will usually occur is that social investment will shift more from holding physical assets to holding virtual assets, the most typical of which is real estate. The representative of virtual assets is financial assets.

If we do not choose to take the road of flooding, then the funds we can use mainly come from three aspects: funding policies, foreign investment attracted by the opening of financial markets; mobilizable social idle funds (that is, people’s deposits to participate in investment).

About “mobilizable social idle funds.” From the current point of view, the capital market is relatively hot, which is attractive to this part of the capital; in addition, since October 2016, the national level has begun to restrict investment in the real estate sector and advocate “housing and not speculating.” This is actually guiding residents’ idle funds from holding physical assets to holding virtual assets such as financial assets.

According to the household savings scale of nearly 100 trillion, if our savings rate can drop by 20%, reaching a level close to the savings rate of the United States, once this part of the funds is used for financial investment, it will definitely bring about China’s financial market. Variety.


This article is from WeChat official account:Fresh Capital (ID: freesvc) , author: Li Feng