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Editor Department of this magazine | Hu Jinhua
As we focus more on economic development in the future, China's economic growth rate will rebound significantly, and the RMB exchange rate against the US dollar will also return to the appreciation channel.
In the early morning of September 22, Federal Reserve hiked interest rates again 75 basis points, and at the same time adjusted the interest rate forecasts from 2022 to 2024 from 3.4%, 3.8%, and 3.4% to 4.4%, 4.6%, and 3.9%, respectively. US dollar index stood firm at the 111 mark, and the onshore RMB against the US dollar trading was on the shore. The mid-term fell below 7.1, hitting a new low since June 2020, and the Hong Kong Hang Seng Index hit a new low in the past 10 years...
"The Federal Reserve raised at least 400BP throughout the year. Interest rate breaking '4' will have a wide and profound impact on global economy and financial markets." , chief economist at Qilu Research Institute, told Red Weekly.
He suggested that investors look at the RMB "breaking 7" rationally, "there is no need to make a fuss", because my country implements the monetary policy, which is mainly me, and needs to be considered based on the fundamentals of my country's economic development. At present, China's economy is still a problem of insufficient total demand, and there is no inflation concern caused by high global energy prices. Therefore, monetary policy will remain moderately loose to achieve stable growth. In the future, interest rate cuts and reserve requirement ratio cuts will still be policy options.
Regarding the performance of in the A-share market this year, he said that the market is brewing new opportunities at the bottom. Although the short-term impact of the external environment is high, the probability of maintaining fluctuations is high, as China's economy enters a new round of growth cycle, the A-share market will still be a long-term bull trend in the future.
| The Federal Reserve raises interest rates for 400BP for the whole year, almost a foregone conclusion breaks "4" and is close to the board. |
"Red Weekly" : Since the Fed started this round of first rate hikes in March, the intensity and speed of interest rate hikes have gradually accelerated and increased. With the implementation of 75BP interest rate hikes on September 22, the federal funds rate reached 3% to 3.25%. At present, there are two windows of interest rate hikes by the end of the year. In your opinion, how likely is the United States to raise interest rates by the end of the year to break the "4"?
Pan Xiangdong: The Federal Reserve raises interest rates at least 400BP throughout the year, which is almost a foregone conclusion, breaking the "4" is close to a certainty. The interest rate hike in September is the fifth rate hike this year and the third consecutive rate hike of 75 basis points. But U.S. inflation remains high and remains resilient. In order to curb the 40-year high inflation rate, the Fed will continue to insist on hikes in order to achieve its goal of reducing inflation to 2%. From this point of view, it is expected that the Federal Reserve will raise interest rates by 75BP and 50BP in November and December respectively this year.
"Red Weekly" : Some people believe that the "high fever in US inflation does not recede" is related to the rise in tariffs on imported goods caused by Sino-US trade frictions, such as "the interest rate hike does not lower tariffs, and the effect of suppressing inflation is half less." How do you view this statement?
Pan Xiangdong: Reducing tariffs has a certain impact on cooling inflation, but it is not the dominant factor. Inflation in the United States is mainly affected by factors such as rent, energy prices, and labor shortages. The continued interest rate hike of the Federal Reserve is based on its own interests. The determinants of the capital market are the current monetary policy cycle and economic cycle. So, I think that if tariff reduction measures are introduced in the future, it will only be a boost signal, but it will not be a dominant factor.
| There is no need to be frightened by the RMB "breaking 7". After China's economy stabilizes, it will return to the appreciation channel |
"Red Weekly" : The United States' interest rate hike exceeded expectations has led to a sharp fluctuation in the global financial market this week, recession expectations have gradually risen, and non-US currencies continue to depreciate. Among them, after the opening of the market on September 22, Beijing time, the onshore RMB fell below 7.1 against the US dollar, setting a new low since June 2020.What do you think about this?
Pan Xiangdong: Investors should see that since my country implements a monetary policy that is mainly me, even if the United States continues to raise interest rates in the short term, domestic monetary policy remains moderately loose, and the RMB exchange rate against the US dollar breaks by 7.0, there is no need to make a fuss.
With the evolution of the Federal Reserve's interest rate hike and balance sheet reduction, the US economy is likely to enter a recession in the future. As we focus more on economic development in the future, China's economic growth rate will rebound significantly, and the RMB exchange rate against the US dollar will also return to the appreciation channel.
"Red Weekly" : You mentioned just now that the current pace of rate hikes of the People's Bank of China is not synchronized with the Federal Reserve, and even reverse operations occur. How to understand the logic behind this "outsynchronous" operation and will it be sustainable in the future?
Pan Xiangdong: Central Bank on August 15th lowered the interest rates of medium-term lending facilities (MLF) and open market reverse repurchase (OMO) by 10 basis points each, exceeding market expectations. Then, the loan market quotation rate (LPR) was guided to lower the trend, with 5 basis points lowered for one year and 15 basis points lowered for more than five years. The support for medium- and long-term loans such as real estate mortgages was interpreted by the market as a reverse operation with the Federal Reserve's interest rate hike. However, in-depth analysis shows that these are all choices based on China's economic situation. After all, the important factor that determines the future trend of exchange rate is the strong economic growth in the future.
Therefore, when formulating monetary policies, my country needs to consider the fundamentals of my country's economic development, and the exchange rate market is more inclined to short-term influencing factors. At present, China's economy is still a problem of insufficient total demand, and there is no inflation concern caused by high global energy prices. Therefore, monetary policy will remain moderately loose to achieve stable growth. In the future, interest rate cuts and reserve requirement ratio cuts will still be policy options. On September 15, the six state-owned banks of the Industrial and Peasants and China Construction of Diplomacy and the Postal Savings , and the China Merchants Bank announced in unison that the reduction of personal deposit interest rates is a good example.
Moreover, in fact, on the premise that major currencies around the world depreciate significantly against the US dollar, the moderate depreciation of the RMB exchange rate against the US dollar will help maintain the stability of the effective exchange rate of the RMB, and there is no need to stand firm.
| Feder rate hike directly affects A shares will weaken can pay attention to active themes with a high proportion of exports stocks |
"Red Weekly" : Do you think the impact of the Federal Reserve's interest rate hike and the RMB "breaking 7" on the Chinese stock market?
Pan Xiangdong: There are many factors that affect the stock market, including domestic economic policies, corporate profits, and market funds. Although A-shares have a certain degree of independence and their trend mainly depends on the development status of the domestic economic situation and the influence of policies, we have also seen the intensification of overseas market volatility under the Federal Reserve's continued interest rate hikes, and the continued accumulation of pressure on RMB depreciation have made A-shares inevitably affected by external factors.
Overall, the Federal Reserve's interest rate hike can indirectly affect my country's investment, consumption, import and export through exchange rates, interest rates, commodity prices, prices, etc., and thus have a certain impact on my country's stock market. On the other hand, short-term capital outflows caused by the Federal Reserve's continued interest rate hikes will directly make the stock market vulnerable to the impact of capital and sentiment.
However, as market expectations stabilize, the direct impact of the Federal Reserve's interest rate hike on my country's stock market will gradually weaken.
"Red Weekly" : In terms of investment opportunities, which industries do you think are worth paying attention to at present, and which investment risks are relatively high?
Pan Xiangdong: The impact of the weakening of the RMB on the economy is two-way.First of all, the impact on capital-intensive industries and industries that rely heavily on imports, such as aviation, real estate, etc., is definitely negative, and exchange rate depreciation will further deteriorate the balance sheets of these industries.
However, for the export processing industry, exchange rate depreciation will increase their international competitiveness and improve their operating conditions. In August, in US dollars, exports increased by 7.1% year-on-year, 18% year-on-year in July and 17.9% year-on-year in June. The export growth rate in August fell sharply compared with June and July. A moderate depreciation is conducive to stabilizing exports. Judging from the recent market performance, there are also many active stocks and themes that benefit from the depreciation of the RMB and the high proportion of exports.
"Red Weekly" : The United States continues to raise interest rates to absorb funds back, and Russian geopolitics has led to soaring oil and gold prices. Some people believe that China can form a situation where "the brave will win when they meet in a narrow way" by making efforts in "dual carbon" and new energy (including the entire industrial chain of new energy vehicles , etc.). Do you agree with this?
Pan Xiangdong: In recent years, with the turmoil in the international political and economic environment, countries have further increased their attention to the security of the industrial chain. Energy security is the top priority under the "bottom line thinking", and energy autonomy is the guarantee of economic development and people's livelihood stability. We see that since the Russian-Ukrainian conflict, due to the sharp drop in gas transmission volume of the " Nord Stream-1" pipeline, the soaring energy prices have brought great challenges to Germany's economic growth and domestic political situation. Reducing the safety hazards caused by excessive dependence on energy imports is the key to ensuring good economic development and social stability. Therefore, it is inevitable to vigorously develop clean energy technology, reduce the external dependence of old energy, and maintain energy security.
| The market is brewing new opportunities at the bottom. From the long-term A-shares are still on the way to bull trend |
"Red Weekly" : The complex 2022 is about to pass, how do you think the A-share market will perform this year?
Pan Xiangdong: Grasp and analyze the macro trend, make good timing and choose a good investment track, in fact, it is inseparable from the continuous tracking and statistical analysis of economic data, using logical reasoning and making judgments, and interpreting and grasping the laws of economic operation and its interaction with macro policy .
The current macroeconomic policies are looking for a balance between long-term goals and short-term constraints. With the stable economic growth in the short term, the market is brewing new opportunities at the bottom. In this process, with the increase in the concentration of the capital market, high-quality tracks and high-quality enterprises will continue to emerge. I believe that as China's economy embarks on a new round of growth cycle in the future, the A-share market will be a long-term bull trend in the future.
"Red Weekly" : Affected by the external market environment, the Chinese stock market has also entered a period of continuous adjustment recently. Is it a good time to enter the market?
Pan Xiangdong: In the short term, the overall Chinese equity market may still maintain a volatile trend.
Judging from economic data, the economy was marginally weak in August, but the hidden concerns of the economy still exist. Among them, exports fell sharply, real estate was weak, and various real estate data still failed to stabilize and rebound, and it was still in the process of bottoming out of . At the same time, we have also seen that the policy of stabilizing growth is also being implemented at a faster pace, and further economic recovery is expected. In September, in addition to the Fed's interest rate hike boots landed, there is still a lot of external uncertainty. The recurrence of the epidemic and the intensification of energy problems in Europe, and the global asset pricing still faces recession risks and strong US dollar suppression factors.
Therefore, investors still need to be wary of the risks of market panic and increased volatility caused by the continuous and large-scale interest rate hikes in the Federal Reserve in the short term. But in the medium and long term, the main reason for affecting the stock market is the trend of China's economy. If China's economy can return to a higher growth rate in the future, or form a new round of economic growth cycle, then the Chinese stock market will naturally show a good market.
(Pan Xiangdong, Ph.D. in Economics, Chief Economist of Qilu Research Institute. This article has been published in "Red Weekly" on September 24. The views in the article only represent the individual guests and do not represent the position of "Red Weekly".)
