On September 24, 2024, the State Council Information Office held a press conference, where Pan Gongsheng, Governor of the People's Bank of China, Li Yunze, Director of the State Financial Regulatory Administration, and Wu Qing, Chairman of the China Securities Regulatory Commission, introduced the financial support for high-quality economic development and answered questions from journalists. During the press conference, the "one bank, one bureau, one commission" introduced a series of significant favorable policies, involving the real estate market, stock market, bond market, and foreign exchange market.
Fidelity believes that the relevant favorable policies are "beyond expectations" and are a "positive boost" for the market, which will improve market sentiment in the short term. The liquidity support policies for the market clearly indicate additional benefits for large-cap stocks and high-dividend stocks.
Fidelity International Asia Economist Liu Peiqian:
Significant favorable policies have a positive boost for the market
Expected to improve market sentiment in the short term
Liu Peiqian stated that the significant favorable policies introduced on the 24th are a positive boost for the market and will improve market sentiment in the short term. Previously, the market had been expecting the regulatory authorities to adopt a more gradual approach, but the announcement of a one-time reduction in policy interest rates along with related important measures demonstrates the high level's great emphasis on supporting domestic demand. We also noticed that the series of easing policies introduced this time did not change the process of high-quality development. The high level still insists on adjusting the economic structure in a stable and transitional way, steadily advancing towards the goal of high-quality growth.
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"In addition, the central bank governor also provided clear forward guidance and hinted that there might be further reductions in the reserve requirement ratio and policy interest rates under appropriate circumstances. We welcome the high level's clear guidance on monetary policy. From a global perspective, after many developed economies have started the interest rate reduction cycle, the People's Bank of China will have more room to adopt easing policies while maintaining the basic stability of the renminbi exchange rate."
Fidelity Fund (China) Co-Head of Investment, Fund Manager Nie Yixiang:
Liquidity support policies exceed expectations
Clearly indicate additional benefits for large-cap stocks and high-dividend stocksNie Yixiang stated that a series of significant positive measures were introduced today, and the market responded positively. Overall, the monetary policy has exceeded market expectations, and the real estate policy is basically in line with market expectations, with liquidity support for the market greatly exceeding expectations.
"We believe that the truly unexpected content is mainly reflected in the liquidity support policies for the market, clearly benefiting large-cap stocks and high-dividend stocks. The monetary policy has already exceeded expectations. Whether the subsequent market performance can continue mainly depends on whether fiscal policy will be synchronized and exerted.
If the overall profitability of enterprises cannot be improved, after interest rates further decline, the asset scarcity may intensify, and stable high-dividend and high-liquidity large-cap stocks will have more investment and allocation value. Before seeing further efforts from the fiscal side, we continue to be optimistic about high-dividend stocks and large-cap high-liquidity stocks; we remain cautious about the consumer and real estate sectors. Looking forward to the future market, we expect subsequent fiscal policy efforts and the year-end Politburo meeting to make a positive tone for the economy next year."
Fidelity Fund (China) Fixed Income Fund Manager Cheng Hao:
The bond market's marginal relaxation of funds is more certain
Short-term interest rate bonds generally perform more stably
Cheng Hao said: "The press conference announced unexpected monetary policies and a package of favorable financing policies for the stock market. Under this policy combination, the bond market curve steepened, and long-term bonds performed weakly. On the one hand, the market's expectations for subsequent economic stimulus policies increased, and the risk preference of the capital market increased. On the other hand, almost all the monetary policy cards that may be introduced this year have been revealed, and the bond market's benefits have been released. After the long-term interest rates rapidly declined in the past month, they concentrated on taking profits, and the short-term selling pressure was relatively large. In addition, after the unexpected reserve requirement ratio reduction, the bond market's funds' marginal relaxation is more certain. Therefore, short-term interest rate bonds generally perform more stably. After the adjustment in August, the credit spread of short-term credit bonds is at a relatively high stage, and the cost-performance ratio is relatively high, so the overall credit performance is better than interest rates.
After this press conference, the stock and bond market trends are more extreme. For the stock market, the unexpected stimulus policies are like a timely rain after a long drought, and the cyclical sectors perform well. However, under the background of reserve requirement ratio reduction and interest rate cuts, the long-term interest rates still rose significantly. We believe that the market performance on the 24th reflected expectations for subsequent policies. Fundamentally speaking, the medium and long-term trends of the bond market will still be determined by changes in the economic fundamentals and monetary policy. Overall, this unexpected monetary policy reflects the central government's determination to achieve economic goals for this year and even the long term.
At the same time, we still need to see that the core problem faced by the current economy is the pressure of insufficient effective demand, which is not caused by monetary policy and therefore cannot be solved by monetary policy alone. On the one hand, the high leverage ratio and debt risk of local governments have constrained infrastructure, which played a counter-cyclical adjustment role in the past cycle. On the other hand, real estate also faces long-term structural issues brought by the slowdown of population growth and the saturation of urbanization at the stage; and enterprises and individuals, under these macro factors, increase the uncertainty of income, gradually reduce spending, and bring a negative cycle. Compared with monetary policy, the subsequent efforts of the fiscal side are still needed to stimulate demand.
In the short term, the unexpected reserve requirement ratio reduction has a high certainty for improving the funding situation, so the safety of short-term interest rates is relatively high. After the adjustment in August, the spread interval of short-term medium and high-grade credit bonds is appropriate, so the cost-performance ratio is relatively high, and there is still room for compression. For long-term interest rate bonds, after the rapid decline in the previous period, the profit-taking forces of institutions and expectations for economic stimulus may have adjustment pressure in the short term. However, from a medium and long-term perspective, if the interest rate decline channel remains unchanged, the configuration power may still be relatively strong.For the medium to long term, a more accommodative monetary policy is generally conducive to the downward movement of bond interest rates. The subsequent expectations of a decrease in the interest rates of existing mortgages and deposit rates will also benefit bond assets through the comparative effect and the cost of funds. The monetary policy that exceeded expectations at the press conference also indicates that a loose monetary policy will be an important condition to ensure the achievement of economic targets. Therefore, we also expect that the monetary policy will maintain a state favorable to the bond fundamentals for a long time.
Fidelity Fund (China) Fund Manager Zhang Xiaomiu:
A series of favorable policies
Has started well to reverse the downward trend of China's monetary velocity
Zhang Xiaomiu said that the central bank's reduction of reserve requirements, interest rates, and the interest rates of existing mortgages, as well as the creation of new policy tools to support the development of the stock market, the positive effects of these policy measures are not only limited to the liquidity support for the real estate and stock markets. On a deeper level, it has started well to reverse the downward trend of China's monetary velocity. Especially the policies related to the stock market, if smoothly implemented, will be able to activate some idle or idle funds through the medium of the stock market, thereby improving China's effective monetary velocity.
Furthermore, if the wealth effect of the stock market is repaired, it will drive investment sentiment in a broader field, thereby improving employment and resident income expectations, promoting consumption recovery, and ultimately promoting China's economic growth rate to return to the long-term trend line. Due to the huge size and inertia of China's economy, a series of policy combinations need to be pressed forward to achieve the aforementioned positive policy effects. Therefore, on the basis of the expected improvement on the 24th, market participants will continue to observe the introduction and implementation of subsequent policies.