2020 opening gift package： how to get to the stock market and property market when the RRR is lowered？ Look here

　　Zhongxin Jingwei client January 1 ST (Wei Wei Xue Yufei) After many days of market expectation, on the first day of 2020, "Yang Ma" sent a gift package for RRR reduction. On the afternoon of the 1st, the People’s Bank of China announced that in order to support the development of the real economy and reduce the actual cost of social financing, it decided to reduce the deposit reserve ratio of financial institutions by 0.5 percentage point on January 6th, 2020 (excluding finance companies, financial leasing companies and auto financing companies). The industry believes that after the RRR cut, it will have certain benefits for the stock market, bond market and property market.

　　The central bank lowered the deposit reserve ratio of financial institutions Source: official website, People’s Bank of China

　　Release long-term funds of about 800 billion yuan.

　　The central bank said that the RRR cut was a comprehensive RRR cut, reflecting countercyclical adjustment, releasing long-term funds of about 800 billion yuan, effectively increasing the stable source of funds for financial institutions to support the real economy, reducing the capital cost of financial institutions to support the real economy and directly supporting the real economy.

　　In this comprehensive RRR cut, small and medium-sized banks, such as city commercial banks, rural commercial banks serving counties, rural cooperative banks, rural credit cooperatives and rural banks, which operate only in provincial administrative areas, have obtained long-term funds of more than 120 billion yuan, which is conducive to strengthening the financial strength of small and medium-sized banks that are based in the local area and return to their original sources to serve small and micro private enterprises. At the same time, the RRR cut will reduce the capital cost of banks by about 15 billion yuan per year, which can reduce the actual cost of social financing through bank transmission, especially the financing cost of small and micro enterprises and private enterprises.

　　Looking back on 2019, China has implemented three RRR cuts.

　　The first round was a comprehensive RRR cut in January 2019. On January 15 and 25, respectively, the deposit reserve ratio of financial institutions was lowered by 0.5 percentage points, and about 1.5 trillion yuan was released.

　　The second round is targeted cuts to required reserve ratios, which was put into practice three times in May, June and July of that year, respectively. For small and medium-sized banks that focus on local areas and serve counties, a lower preferential deposit reserve ratio was implemented, and about 280 billion yuan of long-term funds were released.

　　The third round is the comprehensive RRR reduction and targeted cuts to required reserve ratios. On September 16, the deposit reserve ratio of financial institutions was lowered by 0.5 percentage point, and the deposit reserve ratio of city commercial banks operating only in provincial administrative areas was lowered by 1 percentage point, which was implemented twice on October 15 and November 15, with each reduction of 0.5 percentage point. The RRR cut released long-term funds of about 900 billion yuan.

　　Does continuous RRR cuts mean that the orientation of prudent monetary policy has changed? The central bank stressed that the RRR cut is a hedge with the cash before the Spring Festival, and the total amount of liquidity in the banking system will remain basically stable, flexible and moderate, not flooded, which shows that the scientific and steady control of the counter-cyclical adjustment of monetary policy has not changed.

　　Why did you choose to lower the RRR in January?

　　In fact, this RRR cut is expected. On December 23, 2019, The Politburo Standing Committee (PSC) and Li Keqiang, Premier of the State Council of the People’s Republic of China of the Communist Party of China made an inspection tour in Chengdu, saying that they would further study and take various measures such as lowering the RRR and targeted cuts to required reserve ratios, refinancing and rediscounting to reduce the real interest rate and comprehensive financing cost.

　　"At that time, the market generally expected that the RRR would be lowered in the near future." Dong Ximiao, chief researcher of Xinwang Bank and distinguished researcher of the National Finance and Development Laboratory, analyzed that the fiscal expenditure increased near the end of the year, and the total amount of liquidity in the banking system was at a high level. On December 31, the central bank announced that it would not carry out reverse repurchase operations, which laid the groundwork for the RRR cut in January.

　　Wen Bin, chief researcher of China Minsheng Bank, pointed out that in view of the fact that 600 billion yuan of reverse repurchase was due in January, the liquidity was under pressure due to factors such as overlapping tax payment, the issuance of special local government bonds and the cash demand during the Spring Festival.

　　Huatai Securities Research Report analyzed that the liquidity gap in January was large, which required the central bank to lower the RRR for hedging.

　　First of all, from a seasonal point of view, the cash outflow before the Spring Festival is large. The Spring Festival is on January 27th, 2020, slightly earlier than in previous years. Judging from the months of previous Spring Festival, the outflow of M0 is large, which causes great liquidity pressure on the banking system and requires the central bank to hedge liquidity.

　　Second, the issuance of local special bonds in the New Year is just around the corner, and liquidity hedging is also needed. On November 27th, the Ministry of Finance issued some new special debt limits of 1 trillion yuan in 2020 ahead of schedule. On December 20th, the Ministry of Finance issued a new quota of 62.4 billion yuan for some special bonds in Sichuan Province in 2020 ahead of schedule. The first batch of bonds will be issued nationwide from January 2nd, 2020, and other provinces are expected to follow suit. This means that the issuance of local special bonds in 2020 will be earlier than that in 2019, and the issuance scale may be larger, which will cause liquidity pressure on commercial banks.

　　Third, January is the traditional peak of tax payment. From 2017 to 2019, the month-on-month increase of fiscal deposits in January was 490.8 billion yuan, 951.8 billion yuan and 688.6 billion yuan respectively, and the tax payment scale was large. In addition, because the Spring Festival in 2020 is in January, the date of tax return may be moved forward, and tax payment is expected to bring a lot of funds back.

　　Fourth, the maturity of the open market in January was large. Since the central bank put a number of 14-day reverse repurchase in the open market last week, a number of funds will be concentrated in early January, and a total of 550 billion yuan of reverse repurchase will expire in the first three days of January, which will also increase the liquidity pressure in early January.

　　Fifth, the LPR will continue to be lowered through RRR reduction. In December, the LPR did not continue to be adjusted, but under the requirement of "reducing social financing costs" of the Central Economic Work Conference, the central bank’s motivation to guide the decline of LPR remained undiminished. It may also be a more appropriate way to reduce the debt-side cost of banks by lowering the RRR, so as to guide the LPR to continue to be lowered in January.

　　Data Map: China People’s Bank. China News Agency issued Yang Mingjing Photo source: CNSPHOTO

　　Dong Ximiao believes that before the Spring Festival, the scale of cash investment in the banking system will exceed usual. For banks, "early investment will benefit early". At the beginning of the year, credit investment is often more, and there is a large demand for funds. This comprehensive RRR cut will help to ensure the supply of funds for financial institutions, maintain a reasonable and sufficient liquidity before the holiday, promote the smooth operation of the financial market, and help banks to do various financial services before and after the Spring Festival.

　　Wen Bin said that on the one hand, the 800 billion yuan of funds released by RRR cuts can meet the above liquidity needs, on the other hand, releasing low-cost long-term funds is conducive to reducing the capital cost of banks and guiding banks to reduce the financing cost of the real economy. It is expected that the quotation of the new phase of LPR will decrease slightly on January 20th, with 1-year LPR of 4.1% and 5-year LPR of 4.75%.

　　What is the impact of stock and debt exchange market?

　　In fact, after the Prime Minister proposed on December 23, 2019 that "various measures such as RRR reduction and targeted cuts to required reserve ratios, refinancing and rediscount will be further studied", financial markets including the stock market and bond market have responded in the following days, and many people in the industry have overdrawn in advance. However, after the RRR cut, the financial market performance is still worth looking forward to.

　　Wen Bin said that the RRR cut is in line with market expectations, which will help boost investors’ market confidence and bring benefits to the stock market. At the same time, the overall downgrade will further play the countercyclical adjustment role of monetary policy tools, stabilize the macro-economy that is gradually stabilizing at present, and improve the performance of listed companies.

　　"On the New Year’s Day and the first day of the new year, the central bank announced a reduction of the deposit reserve ratio by 0.5 percentage points, which has formed a major positive for the economy and the capital market." Yang Delong, chief economist of Qianhai Open Source Fund, analyzed that before the holiday, the A-share market continued to grow slowly, and the market successfully stood at 3,000 points. However, before the holiday, the market increased in volume, especially the brokerage stocks regarded as the weather vane continued to attack, which established this round of cross-year market. After the holiday, the market will undoubtedly continue its upward trend and launch a spring offensive. According to experience, spring is often an important time window for the market to do more. This RRR cut is undoubtedly a catalyst for the market and will further promote the sharp rebound of the A-share market.

　　Yang Delong believes that the A-share market will continue the trend of slow growth in 2020. On the basis of standing firm at 3,000 points, the Shanghai Composite Index will further expand its space, with a rising space of about 20%, which is basically equivalent to the 22% rise of the Shanghai Composite Index in 2019. From the perspective of investment opportunities, there will still be more investment opportunities in 2020, and the three major directions of consumption, brokerage and technology are still my optimistic directions. Insisting on value investment and being a good shareholder of the company is still the most important investment strategy to seize the market in 2020.

　　Zhang Yulong, chief strategist of CITIC Jiantou, further pointed out that this RRR cut is very helpful to the market, and A shares will continue to rise substantially, with "cycle+finance" such as real estate, building materials, construction, securities firms and banks as the most dominant varieties.

　　In addition to benefiting the stock market, it also brings certain benefits to the bond market. Ming Ming, deputy director of CITIC Securities Research Institute, told Zhongxin Jingwei client that the increased liquidity of the central bank is also beneficial to the preference of banking institutions to allocate bonds.

　　It should be noted that some analysts believe that the scale of debt-based issuance has declined, and the rate of return may be adjusted upward after the RRR cut.

　　Pacific Securities analyzed in the research report that the logic of short interest rate bonds still exists: the economy continues to stabilize within a quarter, inflation runs at a high level, and trade frictions ease, so the yield of interest rate bonds may face upward pressure again after the RRR cut. According to statistics, the scale of debt-based issuance has declined in December, only about 20 billion in the first half of the year, and the allocation demand may come to an end. Moreover, the funds allocated in the early stage may also be sold for profit, and the upward adjustment of the rate of return may be increased.

　　In addition, will the RRR cut affect the exchange rate? According to the previous calculation of the Sino-Singapore Jingwei client, in 2019, the central parity of RMB against the US dollar was adjusted by 1,130 basis points, with an adjustment range of about 1.65% (the central parity of RMB against the US dollar in the last trading day of 2018 was 6.8632), which was 3.4 percentage points narrower than that in 2018.

　　In this regard, it is clearly pointed out that the exchange rate is relatively indirectly affected by the RRR cut. Recently, Sino-US trade negotiations are generally improving, so the exchange rate will remain stable as a whole.

　　The property market may appear "Xiaoyangchun"

　　Zhang Dawei, chief analyst of Zhongyuan Real Estate, told Zhongxin Jingwei client that historically, as long as there is a RRR cut, it will definitely be good for the property market. The RRR cut can ease the financial pressure of real estate enterprises, and property buyers can also get a relatively low mortgage interest rates.

　　However, Zhang Dawei said that the impact of RRR cuts on housing enterprises of different sizes is also different. The RRR cut is a good thing for large real estate enterprises, but it has little impact on the financing of small and medium-sized housing enterprises. It is expected that the follow-up market will still be "big fish eat small fish".

　　Yan Yuejin, research director of the think tank center of Yiju Research Institute, said that from the current situation, the financial environment of the real estate market is expected to be further relaxed, especially in the fields of real estate development loans and personal mortgage loans, which will help drive more bank loans into the market and have a more positive impact on the property market.

　　Yan Yuejin said: "The liquidity in the market after the RRR cut has increased, which is expected to further reduce the LPR (loan market quotation rate), and the mortgage interest rate may be lower, thus reducing the cost of buying a house, and also making the work of converting the pricing method of floating loans in March 2020 better."

　　Regarding the impact of market transactions, Zhang Dawei believes that it will slow down the downward trend of the real estate market. From the point of view of time, there was also a RRR cut in January 2019. Due to the RRR cut and the blowout of talent policies in various places, there was a round of "Xiaoyangchun" in the property market that lasted for 2-3 months. After that, the policy tightened and the market cooled down. After the RRR cut, it will increase the possibility of "Xiaoyangchun" in the property market in 2020.

　　Yan Yuejin also believes that the RRR cut will stimulate market transactions. After the RRR cut, housing enterprises and intermediaries will take the RRR cut as a marketing breakthrough, and the consultation volume and actual transaction situation of housing sales will rise, and house prices will easily rebound, so relevant departments need to pay attention.

　　However, the general trend of "stability-oriented" property market has not changed. Zhang Dawei said that the purpose of the central bank’s RRR cut is clear, that is, to ensure the liquidity of the market, mainly the liquidity of small and micro enterprises, and accurately inject water into the real economy. The purpose is definitely not the property market, and the central government’s determination to curb the rise in housing prices will not change.

　　Expert: It is expected that the RRR will be lowered twice this year.

　　Will the RRR cut continue this year? Wen Bin believes that the overall RRR cut will adhere to the stable monetary policy and replace short-term and high-cost funds by releasing low-cost long-term funds, so as to keep the market liquidity reasonable and sufficient and the liquidity structure more optimized. In the next stage, there is still room and necessity for comprehensive RRR reduction. Combined with targeted cuts to required reserve ratios, it is expected that there will be room for 2-3 RRR reductions.

　　Dong Ximiao predicts that there will be another one or two times this year, and next time it may be targeted cuts to required reserve ratios. However, more will push down the loan interest rate through the path of MLF-LPR, thus reducing the financing cost of the real economy.

　　How much room is there for monetary policy this year? In this regard, Dong Ximiao pointed out that although the RRR cut was a comprehensive RRR cut, the central bank stressed that the RRR cut was a hedge with the cash delivery before the Spring Festival, and the orientation of prudent monetary policy remained unchanged. It is predicted that in 2020, China’s monetary policy will maintain a stable tone, increase adjustment efforts, maintain flexible and moderate liquidity, and find a balance among multiple goals such as steady growth, structural adjustment and risk prevention. First, continue to intensify counter-cyclical adjustment to better serve steady growth; Second, pay more attention to structural and directional adjustment, and will not engage in flood irrigation; Third, speed up the process of interest rate marketization and improve the efficiency of financial resource allocation; Fourth, actively and steadily guard against financial risks and stabilize macro leverage ratio. (Zhongxin Jingwei APP)