New trend of foreign investment: Chinas bonds fall more and more, accelerating the rotation of a shares

 New trend of foreign investment: Chinas bonds fall more and more, accelerating the rotation of a shares

Now the northward funds are more and more like US investors. Working from home has increased turnover rate and speculation. We can see that the plate rotation is very fast, and the speed of profit taking is also accelerating. Sun Hongzhi, head of Greater China of BNP Paribas Global Markets Department, said in an exclusive interview with first finance reporter.

For example, on June 19 this year, the net inflow of northward funds was as high as US $2.58 billion (about RMB 18 billion); on July 2, the net inflow was as high as US $2.42 billion (about RMB 17 billion), both of which set a higher level than the single day capital inflow in history; however, on July 14, the net outflow of northbound capital reached RMB 17.384 billion, a new one-day record high; on July 16, northbound capital inflow reached a record high of 17.384 billion yuan The net outflow of funds was nearly 6 billion yuan.

In fact, in the past two years, there were not many days in which the net inflow or outflow exceeded 5 billion in a single day.

From this, we can see that the board rotation acceleration characteristics of Beishang capital to A-share investment is obvious. According to our strategy teams research, Beishang investors sold off technology and consumer stocks, and increased their holdings of insurance and securities companies due to capital market reform, according to the largest net reduction industry data released on July 14. The division of this plate shows that Beishang capital is becoming more tactical and opportunistic in holding A-share position.

It is worth mentioning that there are many types of institutions in Beishang funds, including flexible hedge funds, long-term public funds and so on, as well as some Chinese funded institutions registered in Hong Kong or more speculative individuals. This rotation speed is not like the practice of large institutions, it may be more speculative funds, and large institutions will do more quarterly position adjustment, he said

At the same time, the aggravation of capital volatility is also reflected in the improvement of A-share valuation. Beishang capital is no longer fearless of volatility and continues to flow unilaterally as in April, but starts to consider the cost performance ratio. Even if the profit certainty of the interim reports such as consumer electronics and compulsory consumption is higher, it also depends on the valuation, some of which may have been completely reflected in the stock price. Credit Suisse China stock strategist Huang Xiang told reporters a few days ago.

Therefore, from a tactical point of view, Huang Xiang also suggests taking profits from the former cycle plate and increasing the layout of enterprises in the latter cycle and in the recovery cycle. For example, Credit Suisse moderately reduced the proportion of real estate, it, health care, optional consumption and communication industries, and increased the proportion of public utilities, materials, Finance (insurance), compulsory consumption and energy.

In addition, sun Hongzhi also believes that funds begin to adopt the Pinball trading mode, that is, when the global trade situation improves, the capital purchase, market rise and risk sentiment improve; when the situation turns worse, the stock market falls again and defensive strategies are more advantageous.

Foreign investors are buying more and more Chinese bonds

In contrast, the allocation of Chinese bonds by foreign investors is very stable, and the more they fall, the more they buy. This is mainly because the bond trading is often dominated by institutional investors, and the foreign institutions that increase the allocation of Chinas interest rate bonds are often long-term investors such as sovereign funds and the central bank.

In terms of foreign exchange trading and fixed income trading, it is more like institutional behavior. For example, even if the geopolitical risk has risen recently, the USD / RMB has always been trading in the range of 6.9-7.2, which is relatively stable; the net buying scale of Chinese treasury bonds by overseas institutions has continued to increase since April, and even during the sharp correction period in May and June, the overseas Central banks have indeed continued to increase the allocation of Chinas interest rate bonds. Sun Hongzhi said.

According to Bloomberg data, foreign investors net bought about 319.82 billion yuan of domestic bonds in the first half of this year, which is the largest purchase scale since the opening of bond link in July 2017. In addition to interest rate bonds, credit bonds also attract a lot of buying. By the end of June, the scale of domestic credit bonds held by overseas institutions had risen to 122.29 billion yuan, the highest since the data of pembo in 2018, of which the net increase of credit bonds in June was 3.72 billion yuan.

Sun Hongzhi analyzed that the reason why Chinas bonds are more attractive to foreign investors is that after the sale, the yield of Chinese bonds has become more attractive to foreign investors. At present, the interest rate difference between China and the United States has reached a high level of over 230bp (basis points), which also reflects that it is beneficial for the central bank to guide the gradual normalization of capital interest rates in the money market and avoid low interest rates. At the same time, with the strong recovery of Chinas economy, overseas investors have also accelerated the purchase of Chinas treasury bonds and policy financial bonds. Some institutions predict that by the end of 2020, foreign investors will hold more than 10% of Chinas national debt (8.27% as of April this year).

In addition, many overseas institutions need to purchase RMB bonds through currency swap, which involves the swap cost. In view of the tightening of RMB liquidity in recent months, it has also pushed up the cost of swap, leading to a decline in the real yield of foreign investors purchase of RMB bonds. For example, the yield of the same real estate bond at the end of March was 2.41% (after deducting the cost of swap), which is only 1.52% at present. However, some institutions believe that as Chinas capital interest rate tends to stabilize, the subsequent hedging cost is expected to decline.

It is worth mentioning that credit bonds, which were rarely purchased by foreign investors earlier, were also increased. The total amount of credit bonds purchased by overseas institutions has increased substantially, and in June this year it has almost doubled compared with the same period last year. This is also because foreign investors have seen some arbitrage opportunities and increased the allocation of overseas rare varieties. Sun Hongzhi said.

Although it is true that the yield of similar credit bonds in the domestic market is lower than that in the offshore market, it does not mean that foreign investors will not buy them. Sun Hongzhi said that if you look at the bond performance of the same enterprise that has issued bonds at home and abroad, for example, some real estate enterprises US dollar bonds fell sharply during the dollar shortage period in March, but domestic bonds actually rose instead of falling, which attracted foreign investors attention. In addition, some funds hope to buy domestic state-owned enterprise bonds, or high-yield bonds. Some bond varieties are relatively scarce offshore.

In addition, the peoples Bank of China and the China Securities Regulatory Commission jointly issued an announcement on July 20, agreeing to carry out interconnection cooperation between the inter-bank bond market and the relevant infrastructure institutions of the exchange bond market. This also means that foreign funds that can only enter the inter-bank bond market under the bond link are expected to enter the exchange bond market in the future.

A lot of foreign institutions want to enter the exchange market, because there are many high-yield varieties that are not available in the interbank market, and there are also some convertible bonds. In fact, many foreign clients have also participated in several large convertible bond investments through QFII quota, so the investment interest always exists, and the convenience of future investment is expected to be improved. Sun Hongzhi said that under this trend, foreign investors have been paying more and more attention to the research of Chinas credit bonds. Therefore, recently, foreign institutions are expanding the allocation of credit bond traders and researchers.