How the central banks reduction will affect A-share market: good for spring Market interpretation

 How the central banks reduction will affect A-share market: good for spring Market interpretation

The central bank said it would continue to implement a sound monetary policy, maintain flexibility and moderation, avoid flooding, take into account internal and external balance, maintain reasonable and sufficient liquidity, adapt the growth of monetary credit and social financing to economic development, stimulate the vitality of market players, and create a suitable monetary and financial environment for high-quality development and supply side structural reform.

Institutions generally said that the reduction was in line with market expectations and reaffirmed the start of a broad domestic currency cycle, which will be conducive to interest rate sensitive sectors such as real estate and finance.

Guojin securities expects that the subsequent reduction of the open market operating interest rate by the central bank will be a high probability event, which will be conducive to the continued interpretation of the turbulent spring market of a shares in January.

Seasonal factors or direct starting point

Fu Lichun, director of Northeast Securities research, told surging news reporters that seasonal factors are the direct starting point for the central bank to choose the timing of this reduction.

He believes that there are three main factors behind the reduction, one is that liquidity in the money market needs to be supplemented during the Spring Festival; the other is that the pace of the banks monetary credit is relatively concentrated in the first quarter; and the third is that active fiscal policies, such as local bonds, have room for rebound.

Fu Lichun said, the choice of a comprehensive reduction of the standard and a timely point shows that the policies are firmly consistent, and the overall steady and loose monetary policy trend has been further confirmed. In order to hedge the downward pressure of the real economy, it is expected that there will be subsequent policy of interest rate reduction and standard reduction. And for the CPI surge mainly caused by pig price, it may be mainly solved by administrative means.

In the view of Guojin securities, the central bank chose to reduce the reserve in the new year, mainly to reduce the financing cost of small and micro enterprises, and the underlying reason is that the economic downward pressure is greater.

The agency pointed out that at the executive meeting of the State Council held on December 12, 2019, it had proposed to deploy to further reduce the comprehensive financing cost of small and micro enterprises. This reduction of the central banks standard is precisely to implement this requirement. The underlying reason is that the domestic economic downward pressure is still large, the business climate is still weak, and the social employment pressure is gradually emerging.

The market has expected this reduction

On December 23, 2019, Premier Li Keqiang said during a visit to Chengdu that the state will further study and take various measures such as reducing and directional reducing the standard, refinancing and rediscount, reduce the actual interest rate and comprehensive financing cost, and promote the obvious alleviation of financing difficulties and expensive problems of small and micro enterprises.

CICC issued a quick review report after the announcement of the reduction, saying that the market did not have no expectation for this reduction, especially after Li Keqiangs recent speech. Before the Spring Festival, the reduction is in line with the expectation. In view of the liquidity gap of more than 1 trillion yuan usually faced before the long Spring Festival holiday, and the Spring Festival is earlier this year. In addition, a large-scale issuance of local bonds will be launched from January 2, and the issuance arrangement may still follow the trend of before high and after low in 2019. At the beginning of 2020, the banking system will face greater liquidity pressure, which requires the central bank to carry out liquidity hedging.

Huatai futures also predicted this reduction before New Years day.

According to the research report released by the agency on December 31, 2019, due to the frequent occurrence of recent reduction signals, the market has expected the reduction. With the implementation of interest rate anchor reform of stock loans by the central bank last week, we expect that the reduction policy will be issued around New Years day. In order to reduce the overall combination of targeted reduction, it will be gradually implemented in January and February. This reduction is mainly to help expand credit and hedge the liquidity gap in January, and carry out macro counter cyclical adjustment.

Huatai explained that in January 2020, the main causes of liquidity gap include the early issuance of special bonds, the peak of corporate tax payment at the beginning of the year, and the increase of cash withdrawal demand due to the early spring festival, which superimposed an open market maturity scale of about 857.5 billion yuan.

The agency expects a large easing of credit in the first quarter of 2020 and a higher than expected rise in social financing data.

What is the impact on the stock market?

According to the report of Huatai futures, as the overall reduction of reserve represents loose monetary policy while releasing funds, it will generally bring positive signals to the market and good news for the stock market.

The last announced reduction was on September 6, 2019.

The day after the announcement, the Shanghai composite index jumped short and opened high, closing up 0.84%, the Shenzhen Composite Index rose 1.82%, and the growth enterprise market index rose 2.42%.

However, surging journalists found that after the implementation of the standard reduction, the stock market tends to rise and fall, not necessarily rise.

On September 16, 2019, when the last reduction was officially implemented, the Shanghai index and Shenzhen composite index fell slightly by 0.02%, while the growth enterprise market index rose slightly by 0.22%.

According to wind statistics, since 2014, there have been 15 targeted and comprehensive reductions, with the Shanghai composite index falling six times and rising eight times the next day. In the week after the announcement, the Shanghai Composite Index fell six times and rose eight times.

Many institutions are optimistic about the financial and real estate sectors

Hu guopeng, chief analyst of Founder Securities strategy, believes that the reduction will help further stabilize the expectation of economic recovery. After this reduction, it will be different from the overall reduction in September. The core is that the expectation of economic operation has changed, and warm winter market will continue. Similar to the reduction in March 2016, the economy will usher in a phased stabilization, and the stock market will usher in a long window period.

Hu guopeng said that after the reduction, investors can actively allocate industries such as finance, real estate, automobile and building materials that are undervalued and related to the early economic cycle.

He pointed out that the abundant monetary environment in 2020 is conducive to reducing the financing cost of the real economy, especially the trial and error cost of science and technology enterprises. The risk preference has the opportunity of continuous improvement. He is firmly optimistic about growth stocks throughout the year and pays attention to industries such as electronics, media, computers, new energy vehicles and medical devices.

Guojin securities also believes that the overall reduction will benefit sectors with high interest rate sensitivity, including real estate, banks, securities companies and other traditional undervalued blue chip sectors.

In addition, the overall reduction of the standard is conducive to guiding funds to allocate individual stocks with high dividend and high dividend rate, such as SAIC, Wanhua chemical, Huayu automobile, Vanke A, conch cement, etc.