How the market will price a “hurricane” start to social finance – WSJ

On February 10, the central bank announced financial data for January. In January, the balance of social financing was 9.4% year-on-year, with an increase of 5.98 trillion in social financing, of which on-balance sheet loans increased by 4.9 trillion. In January, M2 was 12.6% year-on-year, and M1 was 6.7% year-on-year.

The stock of social financing in January was 9.4% year-on-year, which was 0.2 percentage points lower than the previous value (9.6%). The intuitive readings showed that the social financing in January fell year-on-year. However, the market interpreted the social financing in January as exceeding expectations.

This is because bond issuance financing is high-frequency data, and the market has long expected low corporate and government bond financing in January. In January, the focus of social financing mainly fell on credit.

The 2023 fiscal year may still be a year of expansion, and it may mainly rely on quasi-fiscal tools, that is, bank credit expansion. The logic of bank credit extension is that the rhythm is forward, and the volume is obviously increased at the beginning of the year. Therefore, the market has high expectations for new credit in January. It is expected that the credit will be 4 trillion yuan at the beginning of the year, which is slightly flat compared with the same period last year, and of course it is also a historically high level.

On February 10, treasury bond futures plunged within a day, showing that RMB 4.9 trillion in RMB credit and 5.98 trillion in new social financing still exceeded the market’s previous expectations.

Breaking down the social financing structure in January, social financing is mainly driven by credit, and credit is mainly driven by medium and long-term loans from enterprises.Such a social and financial structure means that the main narrative of the current macro-fundamentals is still a continuation of the old story of last year-the government increased leverage, the private sector has insufficient investment and financing momentum, and the leverage momentum is limited.

However, when we maintain sufficient sensitivity, we will find that the social financial data in the first year have given some new signals.

First of all, this social financing expansion was completed under extremely low bond financing conditions. In January, corporate and government bonds shrank by 435.2 billion yuan and 188.6 billion yuan year-on-year respectively. The former was caused by the impact of the aftermath of wealth management redemptions, and the latter was caused by the adjustment of the pace of government bond issuance.

The second is resident credit. During the peak period of the Spring Festival epidemic, the third- and fourth-tier cities failed to usher in a wave of returning home buyers. In January, residents’ credit continued to be weak. However, what is interesting is that after the Spring Festival, the flow of people returned to the city, and the enthusiasm for second-hand housing transactions in high-energy cities has begun to show signs. Whether the follow-up trend of real estate sales and residents’ credit can usher in a trend reversal requires full attention at the moment.

Since the beginning of February, the multi-dimensional data has confirmed that the redemption of wealth management has been restrained, and the scale of some wealth management products has begun to expand. Just imagine that once corporate bond issuance is restored, government bond issuance will proceed as scheduled after the two sessions in March, adding to the marginal improvement in household credit month-on-month. .

From November last year to January this year, in the past three months, the market has clearly traded domestic recovery expectations, but in the process, financial redemption at the financial level has increased the pressure on the bond market to correct.

Since entering February, the market has been waiting for policy advancement and data fulfillment. Market transactions focus on the continued recovery and resilience of the subsequent recovery.

In the first year of this social financing, the amount of credit issuance has obviously exceeded expectations, which at least shows that the current recovery transaction has not been falsified.

In January, corporate bonds, government bonds, and resident credit were weak. Taking this into account, the “hurricane” social financing data at the beginning of the year also means that credit expansion still has sufficient momentum for some time to come.

This new year’s social financing can be interpreted as good for stocks and bad for bonds.

Of course, whether the credit expansion is sustainable or the recovery is sustainable, the most critical judgment is whether the real estate industry can stabilize.

The previous research of the Minsheng macro team – “The Impact of Chinese-style Fiscal Monetization on Funds” clearly mentioned that in 2023, China’s fiscal monetization will use both internal and external budgets to expand the balance sheet. Different forms of financial delivery tools have completely different impacts on liquidity. This will objectively see an effect. The rhythm of financial investment and the use of different tools during the year will disturb the performance of funds.

We expect capital volatility to increase significantly in 2023.