Interpretation ｜ How does the central bank’s simultaneous announcement of RRR cuts affect the market？ The fund said that the valuation of favorable equity assets rose.

On January 24th, the People’s Bank of China decided to reduce the deposit reserve ratio of financial institutions by 0.5 percentage points from February 5th, 2024 (excluding financial institutions that have implemented the deposit reserve ratio of 5%). After this reduction, the weighted average deposit reserve ratio of financial institutions is about 7.0%. Since January 25, 2024, the interest rates of agricultural refinancing, small-scale refinancing and rediscount will be lowered by 0.25 percentage points respectively.

At the same time, the central bank announced the RRR cut and interest rate cut. What is the impact on the market? The Paper reporters collected the opinions of Bosera Fund, CITIC Prudential Fund, Xinyuan Fund, Chuangjin Hexin Fund, China Merchants Fund, Morgan Asset Management, and HSBC Jintrust Fund immediately after the market closed. Most public offerings believed that the RRR cut was conducive to the stabilization of the capital market, boosting the fragile capital market sentiment and coordinating with future fiscal policies, and also conducive to smoothing the pressure of the Spring Festival withdrawal and the pressure of post-holiday capital return in advance.

Shen Chao, macro and strategic analyst of HSBC Jintrust Fund, said that the RRR cut has a neutral impact on the stock market as a whole, but the stock market is in a historically low range, and the policy of steady growth such as RRR cut will help reverse the pessimistic expectations of the market, so this RRR cut has a positive impact on the stock market.

Gan Jingyun, a macro analyst of Chuangjin Hexin Fund, also believes that the increase in the valuation of the overall favorable equity assets will have a relatively greater impact on small-cap stocks; Bond yields will decline rapidly, but the follow-up may usher in a favorable take profit.

Jiang Xianwei, a senior global market strategist at Morgan Asset Management, believes that the central bank’s forecast of RRR cuts and accurate interest rate cuts will, on the one hand, implement the central economic work conference’s policy of "being flexible, moderate, accurate and effective, and promoting the steady decline of comprehensive social financing costs"; on the other hand, it will alleviate the slightly tight liquidity before the traditional Chinese New Year, which is more expected to promote the convergence of capital interest rates to policy interest rates, and then combine fiscal policy coordination to support credit growth, consolidate and strengthen the economic recovery to a good trend.

Bosera Fund: This RRR cut is conducive to the stabilization of the capital market.

This RRR cut is one of the monetary policy measures to deal with the lack of economic demand. Considering the current economic and corporate profitability, the market has strong expectations for monetary policy easing in the near future. This RRR cut is conducive to stabilizing the market’s expectations for monetary policy, reducing the financing costs of financial institutions and the real economy, and stabilizing the capital market.

The subsequent development of the stock market depends more on the auction market and its delivery, and also on the progress of capacity control and digestion in some industries. In the medium term, these two problems will be solved. Considering the current valuation position of the market, we are optimistic about the performance of the market in the medium term.

CITIC Prudential Fund: The short-term end of the interest rate curve may be expected to usher in a repair market.

At this time, the "RRR cut and interest rate cut" has the following purposes: First, guide LPR to continue its downward trend and strengthen the effectiveness of credit support entities. Restricted by the bank’s interest margin, LPR’s quotation did not go down in January, but the beginning of the year was the peak of credit supply. At this time, further reducing the bank’s debt-side cost through these measures will help the credit to grow faster.

Second, the Spring Festival is a tense stage in liquidity in the banking system, and residents have a great demand for cash. At this time, putting in long-term funds by lowering the RRR will help to stabilize the fluctuation of funds around the Spring Festival and stabilize the liquidity of financial markets at the end of the year and the beginning of the year.

Third, the capital market has fluctuated greatly recently, and the society has a high voice for the introduction of strong measures at the policy level. The central bank announced the policy on the spot at the press conference in response to market concerns.

After the release of the relevant policies of the central bank, the bond market’s concerns about cross-Spring Festival liquidity may be significantly alleviated. Recently, the price of inter-bank funds is still high, the operating balance of the central bank’s open market is large, the market’s expectation of long-term funds is unstable, and the interest rate curve shows a flattening trend. With the RRR cut, the pressure on the long-term liabilities of the banking system may be improved, the capital surface may be more stable, the allocation value of the bond market will be further consolidated, and the short-term and medium-term ends of the interest rate curve may be expected to usher in a repair market.

Xinyuan Fund: There is a high probability that the equity market will improve in March and April.

After the central bank’s excess parity continued to be MLF in January, the market’s expectations for RRR cuts and interest rate cuts all declined, and this RRR cut exceeded market expectations at the time. At the same time, due to the limited space for RRR reduction, the previous four RRR reductions were only 25BP, and this round of one-time RRR reduction was 50BP, which also exceeded market expectations. In addition, in the past, most of the RRR cuts were officially released by the central bank after Friday’s close. This time, the RRR cut was released by the central bank governor at a press conference in the middle of the week, and the way of release exceeded expectations.

In the bond market, it is expected that there will be downside in the short end in the future, and the long end may continue to fluctuate and the curve will be steep. The two most important functions of RRR reduction are to boost the confidence of the equity market and prepare for the large-scale issuance of government bonds. President Pan said that there is sufficient room for monetary policy to maintain reasonable and sufficient liquidity, support the large-scale centralized issuance of government bonds and support the centralized construction of projects, which means that the funds will be guaranteed during the large-scale issuance of government bonds.

The stability of funds opens up space for the loosening of short-term, but the issuance of government bonds and the centralized construction of projects are not very friendly to long-term. It is expected that the short-term yield of the bond market will open the downside but the long-term yield will remain volatile.

In the equity market, the RRR cut boosted market confidence in the short term, but the long-term trend of the market was less affected by the RRR cut. In the short term, the market may continue to fluctuate at a low level, but after the Spring Festival, especially in March and April, the equity market may change to some extent.

China Merchants Fund: Structural interest rate cuts and RRR cuts have played a two-pronged role.

Li Zhan, chief economist of China Merchants Fund Research Department, said that the RRR cut now indicates that the countercyclical adjustment policy has begun to exert its strength, and the wide currency and the release of 1 trillion yuan have kept the market liquidity abundant, and with the wide finance, the special bonds and government bonds in the first quarter can be issued as soon as possible; Structural interest rate cuts and RRR cuts have played a two-pronged role, which is not only conducive to expanding the demand for loans in the real economy, but also conducive to boosting stock market confidence and helping to repair risk appetite.

The decline at the beginning of the year is mostly due to the influence of micro-liquidity and market confidence. The obvious improvement of macro-liquidity and the increase of domestic institutional investors’ holdings are important measures to reverse expectations. After this RRR cut, the lack of liquidity is basically eliminated, and the market may stabilize and gradually repair.

In 2024, A-shares are still expected to stabilize mainly by shocks, and the overall security margin of the market is high, so there will be structural opportunities. In 2024, the macro-monetary and fiscal policies were launched in time, and the endogenous growth resumed. The overall valuation of the current A-shares was already very low, the percentile of the valuation of important indexes was already lower than the bottom of the past several markets, and the valuation of the Growth Enterprise Market was even at the bottom of history. The indexes such as the equity risk premium rate were also in the extremely low range, and the margin of safety was high. We can focus on grasping structural opportunities such as high dividend strategy, technological innovation, reversal of consumption dilemma and supply-side reform.

Chuangjin Hexin Fund: Downgrading the overall valuation of favorable equity assets.

The RRR cut is conducive to improving liquidity expectations, benefiting the sectors that are greatly affected by liquidity, and it is also the target of recent oversold. It has the conditions for oversold rebound, mainly including technology growth TMT, small and medium-sized stocks, Hang Seng Technology, etc. It can pay attention to consumer electronics and chips that are logically pointed by the supply side of the inventory cycle, and the policy is biased towards high-tech and traditional Chinese medicine with high structural prosperity.

In addition, if the RRR cut and the subsequent comprehensive financing cost reduction and other wide monetary policies promote wide credit, it will help improve growth expectations, so the pro-cyclical sector will also benefit. From the historical experience, the pro-cyclical sectors such as real estate, finance and building materials have been boosted after the RRR cut, and we can pay attention to coal, electricity and infrastructure that are both performance scarce and policy-friendly in the pro-cyclical period.

Morgan Asset Management: China assets may usher in an upward opportunity

Jiang Xianwei, senior global market strategist of Morgan Asset Management, believes that in December last year, the Central Economic Work Conference put forward economic construction as the center, emphasizing "striving for progress in stability, promoting stability with progress, and breaking first", indicating that the policy tone in 2024 may be biased; Domestic inflation has been negative for three consecutive months, and the Federal Reserve has not started the interest rate cut cycle, and the domestic real interest rate level is higher than that of the United States. It is expected that there will still be room for RRR cuts and interest rate cuts during the year; In mid-January, the economic data of the fourth quarter and December of 2023 released by the National Bureau of Statistics showed that the domestic economy continued to pick up, the recovery trend remained unchanged, and the market expected more favorable policies to be introduced; On January 22nd, the central bank kept the 1-year and 5-year LPR interest rates unchanged, slightly lower than market expectations.

Judging from the external environment and the profitability fundamentals of listed companies, there has been some improvement compared with last year, and the market was relatively volatile in the early stage. First, the first quarter was in the blank window of financial reports, and corporate profits have not yet been realized. Second, the market expected new favorable policies in the new year. The central bank’s forecast of RRR cut and accurate interest rate cut, on the one hand, has implemented the policy of the Central Economic Work Conference that monetary policy should be "flexible, moderate, accurate and effective, and promote the comprehensive financing cost of society to decrease steadily", and on the other hand, it can alleviate the slightly tight liquidity before the traditional Lunar New Year, which is more expected to promote the convergence of capital interest rate to policy interest rate, and then combine with fiscal policy coordination to support credit growth, consolidate and enhance the economic recovery, which is more conducive to boosting market sentiment. It is expected that more sectors will make profits.

HSBC Jintrust Fund: The policy of steady growth such as RRR cut will help to reverse the pessimistic expectations of the market.

Shen Chao, a macro and strategic analyst of HSBC Jintrust Fund, believes that this RRR cut is an important signal to strengthen the policy of steady growth, and the single release of trillion liquidity also shows that this steady growth is stronger than the previous period. At present, there are still twists and turns on the road to macroeconomic recovery. This RRR cut will help to increase the stable source of funds for financial institutions and reduce the debt cost of banks, which will help banks to increase capital investment in the real economy and reduce the financing cost of the real economy, thus consolidating the economic recovery. For the market, historically, the RRR cut has a neutral impact on the stock market as a whole, but at present, the stock market is in a historically low range, and the policy of steady growth such as RRR cut is helpful to reverse the pessimistic expectations of the market, so this RRR cut has a positive impact on the stock market.