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[Introduction] The room for monetary policy easing has been opened up, which will strongly support the economic recovery.

China Fund News reporter Li Shuchao and Zhang Ling

On August 9, the central bank released the "China Monetary Policy Implementation Report for the Second Quarter of 2024" (hereinafter referred to as the "Report"). Based on summarizing the implementation of monetary policy in the first half of this year and comprehensively analyzing the current economic and financial situation, the "Report" clarified the main ideas of monetary policy in the next stage and released positive signals.

Many experts interviewed said that under the consideration of internal and external balance, my country's monetary policy has room for easing, providing strong support for the recovery of the real economy. At the same time, the report focuses on the interest rate risks behind the current hot bond market and the high returns of some products, and reminds investors and the market to pay attention to interest rate changes, advocate rational investment and strengthen risk management.

my country's monetary policy easing space opens up

The report continued the spirit of the Central Political Bureau meeting at the end of July, believing that "domestic effective demand is insufficient and economic operations are showing signs of differentiation" and that monetary policy should "strengthen counter-cyclical regulation."

China Everbright BankZhou Maohua, a macro researcher at the Financial Markets Department, said that judging from the content of the report, the tone of monetary policy remains continuous and consistent, and the prudent monetary policy continues to maintain a positive orientation, providing strong support for the recovery of the real economy. At present, insufficient effective demand in the domestic economy is still the main contradiction. It is expected that the central bank will maintain a reasonable abundance of liquidity, cooperate with the active fiscal policy, guide financial institutions to balance credit, and better balance the relationship between stabilizing growth, preventing risks, adjusting structure, and balancing internal and external factors, in addition to implementing the previous policy measures.

In Zhou Maohua's view, the subsequent increase and selection of domestic monetary policy quantitative and price tools will need to depend on the domestic macro-economy, price recovery trends, the pace of real estate recovery, and changes in market liquidity, and effectively prevent potential risks of excessively low prices and excessive liquidity.

The Xiong Yuan team of Guosheng Macro also said that the tone of monetary policy was basically continued from the Central Political Bureau meeting and the central bank's second half work meeting, including "prudent monetary policy should be flexible, moderate, precise and effective; enhance the consistency of macro policy orientation and strengthen counter-cyclical regulation". However, there are also many new changes, including the reiteration of "prudent monetary policy should focus on balancing the relationship between short-term and long-term, stabilizing growth and preventing risks, and internal and external equilibrium", the addition of "deepening the effective credit demand and accelerating the transformation of reserve projects", the emphasis on "accelerating the improvement of the central bank system and promoting the transformation of the monetary policy framework", the addition of "preventing interest rate risks", and the obvious increase in the emphasis on science and technology in structural policy tools.

The team believes that the current economic downward pressure is not small, and insufficient demand is still the core contradiction. To achieve the full-year target, policies need to be "continued and more powerful." Specifically on the monetary side, easing is still the general direction, and there is a high probability that the reserve requirement ratio and interest rate will be lowered this year.

Dong Ximiao, chief researcher of China UnionPay, also said that monetary policy is an important part of macroeconomic policy. The report shows that since the beginning of this year, my country's monetary policy has insisted on putting China first, taking into account internal and external balance, and comprehensively using a variety of monetary policy tools to increase counter-cyclical and cross-cycle adjustments. It has lowered the interest rates of multiple policy tools, guided the loan market benchmark rate (LPR) to fall twice, promoted a steady decline in the overall social financing cost, and strongly supported the economic recovery.

Chen Xing's team at Caitong Macro added that the central bank has specially opened a column to remind people to pay attention to the changes in the monetary policies of overseas central banks, and the market's expectations for the Fed's recent interest rate cuts have increased. Against this background, the policy interest rates of major developed economies are likely to fall simultaneously in the future, which may have an impact on emerging market economies. Considering the internal and external balance, the room for my country's monetary policy easing has opened up, and the continued reduction of policy interest rates this year can still be expected.

Wen Bin, chief economist of China Minsheng Bank, concluded that the report focuses on the three major directions of "promoting reform, stabilizing growth, and preventing risks", pays attention to the relationship between "balancing the short-term and long-term, stabilizing growth and preventing risks, internal equilibrium and external equilibrium", and will become a weather vane for guiding financial support for entities and influencing market trends in the next stage.

Remind again of bond market risks

Investment still needs rationality

In the report, the risks of bond assets and bond-type wealth management products received special attention.

On the one hand, the central bank pointed out that it would conduct stress tests on the risk exposure of financial institutions holding bond assets to prevent interest rate risks. On the other hand, the central bank pointed out in Column 4 "The Impact of the Net Value Mechanism of Asset Management Products on Public Investors" that the annualized yield of some asset management products, especially bond-type wealth management products, was significantly higher than the underlying assets this year, mainly achieved through leverage, and actually had a large interest rate risk.

In this regard, the Xiong Yuan team of Guosheng Macroeconomics stated that since April this year, the central bank has continued to warn of the risk of a too rapid decline in interest rates. Combined with the recent operations of the central bank, the central bank has shifted from "expectation guidance" to "off-site operations" in response to the rapid decline in interest rates, and short-term bond market fluctuations may be amplified.

Chen Xing's team at Caitong Macro believes that with the long-term bond interest rate continuing to decline this year, asset management products have increased their allocation to long-term bonds, and the future rise in interest rates will inevitably lead to a decline in the net value of asset management products. With the long-term bond interest rate having deviated from the reasonable central level, the central bank has once again warned of the risk of a correction in the bond market. Combined with the central bank's statement that it will "conduct stress tests on the risk exposure of financial institutions holding bond assets", the central bank's expected management role and curve adjustment capabilities for interest rates may be further strengthened in the future.

GF SecuritiesSenior macro analyst Zhong Linnan stressed that the series of warnings from the central bank are particularly worthy of attention. In the future, the central bank and financial regulatory authorities do not rule out the use of regulatory constraints, macro-prudential policies, treasury bond trading operations, expectation management, window guidance and other methods to reduce interest rate risks. Unilateral expectations of interest rates may change significantly.

In fact, the bond market has been hot this year, and the net value of some asset management products invested in the bond market has continued to rise. Data shows that at the end of July, the average annualized yield of bank wealth management products exceeded 3%, while the current three-year fixed deposit rate of banks is less than 2%, which has attracted some investors to "move" their deposits to such products.

According to the "Semi-Annual Report on China's Banking Wealth Management Market (Part 1 of 2024)", as of the end of June this year, the scale of my country's bank wealth management market reached 28.52 trillion yuan, an increase of 6.43% from the beginning of the year; the number of investors increased to 122 million, of which individual investors accounted for 98.74%, with 7.3888 million new investors in the first half of the year.

The central bank pointed out that in the environment of breaking the rigid payment, asset management products cannot have both "low risk" and "high return" in the long run. The income of asset management products ultimately depends on the underlying assets. When market interest rates rise in the future, the net value of related asset management products will also fall sharply.

Zhou Maohua believes that the central bank intends to remind investors to carefully evaluate the investment risks and returns of current asset management products and invest rationally. At present, my country's asset management products have basically completed the net value transformation, and the net value fluctuation of asset management products has increased compared with the past, especially in complex internal and external environments, the net value fluctuation has a greater impact on investors' returns.

"High returns are inevitably accompanied by high risks. The current hot performance of the domestic bond market is significantly deviated from the economic fundamentals and bond supply trends. Investors need to guard against potential risks of net value corrections." Zhou Maohua said.

Dong Ximiao also said that investors should make asset allocations suitable for themselves and their families based on risk preferences, investment experience and financial management needs, and reasonably choose asset management products that match their risk tolerance. Financial institutions should do a good job in investor suitability management, strengthen investor education, fully disclose information, warn of risks, and truly implement the "seller is responsible, the buyer is responsible for himself" policy.

Editor: Captain

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