FOMO vs "policy fatigue" -- Are investors getting what they have been hoping for?
“Chinese stocks have traded more positively on fiscal than monetary easing since 2016” -- Goldman Sachs
Over the recent holiday, I finally caught up with Season 2 of "Dave." It feels like that now the Chinese stock market is experiencing a rally reminiscent of Dave’s remarkable comeback at the close of Season 2.
Following the seven-day National Day holiday, the National Development and Reform Commission (NDRC), China’s top economic planner, convened a press conference to introduce the latest economic stimulus policies.
Before the National Day holiday, China’s financial authorities announced a broader-than-expected policy package last month to stimulate economic recovery. These policy measures include reducing the reserve requirement ratio for banks and mortgage rates for existing homes, as well as introducing new monetary programs to boost the capital market, among other initiatives.
This broader-than-expected policy package has generated a palpable sense of FOMO (Fear of Missing Out) among many, tempering the prevailing "policy fatigue" among some observers of China's economy. It also draws people's additional attention to Tuesday's press conference.
However, cautionary voices remind people that the stock market always carries risks, particularly for the new wave of investors born post-1995 or 2000, who are navigating these waters for the first time.
Late yesterday (Oct. 7), China’s leading financial media outlets [Caixin] [Yicai] published a commentary by someone with deep ties to the People’s Bank of China in what Zichen Wang believe is a warning to overzealous individual investors.
Former PBOC Research Chief Attempts to Calm Stock Market Frenzy -- Pekingnology
Xu Zhong is Deputy Secretary-General of China’s state-backed National Association of Financial Market Institutional Investors, a self-regulatory organization in the inter-bank market. Before this, he served at the People’s Bank of China (PBOC) for over 20 years, holding various positions, including Director-General of the Research Bureau and Deputy Director-General of the Financial Market Department.
The “swap facility” introduced here does not involve the injection of base money or an expansion of the central bank’s balance sheet, meaning the central bank is not directly intervening in the stock market.
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Both structural monetary policy tools are market-based and part of long-term market reform efforts. These tools do not increase the central bank’s base money supply or expand the monetary supply. They are targeted policy tools with specific use conditions, and the red line of preventing bank credit funds from illegally entering the stock market remains a key regulatory principle. Financial regulatory departments should scientifically monitor and evaluate capital market operations and carefully select the appropriate time windows.
And it turns out that the government was very carefully preparing today's press conference. "玉渊谭天 Yuyuan Tantian," a social media channel affiliated with China Media Group, posted an article just eight minutes before the opening of the press conference. The article revealed that 谭主 Tanzhu, the channel's operator, visited the NDRC to witness firsthand the detailed preparations for the briefing on Oct. 7, one day before the press conference.
发布会前一天下午，谭主专门去了一趟国家发展改革委。为了这场发布会，他们已经准备了很多天，我们到国家发展改革委时，他们还在为发布会做最后的梳理和完善。
"The afternoon before the press conference, Director Tan specifically made a trip to the National Development and Reform Commission. They had been preparing for this event for many days, and when we arrived at the Commission, they were still making final revisions and improvements for the press conference.
In the article, Tanzhu quotes Huang Hanquan, head of the Chinese Academy of Macroeconomic Research:
在过去的两个月中，我国经济总体保持稳中有进的发展态势，但也要看到，部分主要经济指标出现了边际走弱的现象，选择在这时开这样一场新闻发布会，介绍具体的政策举措，展现出了中央对解决当前经济回升中所遇到的问题、推动经济持续向好的决心。同时，这些举措也表明，我们现在还有充足的政策储备。
"Over the past two months, our country's economy has generally maintained a stable and progressive development trend. However, it should also be noted that some key economic indicators have shown marginal weakening. Choosing to hold a press conference at this time, introducing specific policy measures, demonstrates the central government's determination to address the issues encountered in the current economic recovery and to promote sustained economic improvement. Additionally, these measures indicate that we currently have an ample reserve of policies."
So, what emerged from the press conference?To me, the press conference was more of a recap of the measures introduced before the holiday rather than an announcement of detailed new initiatives. It served to reaffirm the central government's commitment to maintaining steady and healthy economic growth and achieving the full-year growth target, which is still very important.
China will study new policies to support economy: official -- Xinhua
China will study new policies in a timely manner to promote steady growth, structural improvement and sustained development of the economy, an official with the country's top economic planner said Tuesday.
The National Development and Reform Commission (NDRC) will closely follow changes of the economic situation, evaluate the effects of policy implementation, and conduct preliminary research on more supportive policies and maintain policy options, said Zheng Shanjie, head of the NDRC, at a press conference.
A meeting of the Political Bureau of the Communist Party of China Central Committee held on Sept. 26 called for stepping up efforts to roll out 增量政策 incremental policies as the country strives to accomplish its annual economic and social development targets. The press conference mentioned that the incremental policies also aim to boost domestic consumption and investment demand. There is no surprise that the "consumer goods trade-in program" and the "ultra-long special treasury bonds" will continue to be the two main "tools" to boost consumption and investment.
The country's consumer goods trade-in program has been fully activated, with passenger car sales rebounding sharply and electrical home appliance sales returning to growth. Related policies will be further advanced to fuel sustained increases in commodity consumption, Zheng said.
On the investment front, ultra-long special treasury bonds will continue to be issued next year with optimized investment areas to implement major national strategies and build up security capacity in key areas, he noted.
Investment projects worth 200 billion yuan (about 14.14 billion U.S. dollars) that are in next year's plans will be released in advance this year to support local governments in accelerating the preliminary work and construction, Zheng told reporters.
A certain proportion of these projects will involve urban renewal, mainly in the construction of pipelines for gas, water, sewage and heating, which is expected to generate investment demand of around 4 trillion yuan in the coming five years, said NDRC deputy head Liu Sushe at the press conference.
Looking forward, all eyes are now on potential fiscal policies which are expected to be aligned with current monetary strategies.
"If not now, when?" Goldman Sachs truly deserves the title of "the vanguard of foreign capital bull market" -- FUTUBULL
Goldman Sachs pointed out that each major policy reversal has led to repricing, with stock market gains rarely stopping at 30%. China's stock market reacts more positively to fiscal easing than monetary policy. Now that monetary policy has basically landed, if there are further fiscal stimulus measures in the future, the market may have a more positive response. Goldman Sachs has upgraded its rating on Hong Kong stocks to 'overweight', but is more bullish on A-shares compared to Hong Kong stocks, expecting A-shares to have a 14-15% upside in the next year.
Meanwhile, Bob Chen, a recent guest on my podcast, discussed the challenges of implementing these fiscal policies in his latest WeChat blog post.
但目前决策层表态后，压力来到了执行层。现在是执行层出棋的环节。这将是一个新的博弈阶段。现代信用货币体系下，相对低成本、路径清晰的降准、降息和利率均一化等货币政策已经推出。到第二阶段，牵涉利益更复杂、成本约束更刚性、道德风险顾虑更大的财政政策成为关键。而且无论是资源投入还是执行，都必须要地方配合，复杂度指数上升，利益平衡难度指数上升。
"However, following statements from the policy-making level, the pressure has now shifted to the implementation level. It is now the turn of the implementation level to make their move. This marks a new phase of strategic interaction. Under the modern credit money system, monetary policies such as relatively low-cost, clear-path reserve requirement reductions, interest rate cuts, and interest rate uniformity have already been implemented. In the second phase, fiscal policies that involve more complex interests, more rigid cost constraints, and greater concerns about moral hazard become critical. Moreover, whether in terms of resource allocation or execution, cooperation from local governments is essential, which significantly increases the complexity and difficulty of balancing interests.
So now, perhaps, it is truly a critical moment.