Key takeaways:
2023 Domestic Economic Review and 2024 Outlook:In 2023, China's economy will start the road of post-epidemic normalization, and the service industry will usher in a recovery, driving the unemployment rate to drop significantly, which in turn will boost consumption, and China's economy will gradually return to a virtuous cycle. However, in 2023, China's real estate sales and development investment will still be significantly negative, and the export growth rate will also decline significantly, which will hit the employment and income confidence of Chinese residents, so the overall consumption will remain weak, ** remain sluggish.
In 2024, China's economy is likely to continue to recover upward, and the real GDP growth rate is expected to reach more than 5%.The momentum includes: (1) the transformation of the economic structure continues to advance, and the momentum of new economic development is sufficient;(2) The drag of real estate on GDP may be narrowed: (3) The policy of stabilizing growth is expected to be strengthened: (4) Stable employment promotes the recovery of residents' consumer confidence;(5) Overseas replenishment of inventories will drive China's export growth to pick up.
2023 Overseas Economic Review and 2024 Outlook:The global economy faces many challenges in 2023. Geopolitical events such as the Russia-Ukraine war and the Israeli-Palestinian conflict have pushed up energy**;Central banks around the world have started interest rate hike cycles;The banking crisis in Europe and the United States broke out. In 2023, the performance of the three major economies in the United States, Japan and Europe will be mixed: inflation in the United States has cooled, economic growth has shown resilience, Japan has come out of "low inflation", strong exports have driven economic recovery, inflation in the euro area has fallen from high levels, and tightening financial conditions have significantly inhibited economic growth.
Key takeaways:
Q1: Progress in the resolution of local debts?The stock of urban investment bonds in Guizhou, Hunan, Tianjin and other places decreased significantly compared with the middle of 2023. Under the guidance of the "formulation and implementation of a package of debt reduction plans" at the Politburo meeting in July 2023, a new round of local debt resolution will be accelerated. In the fourth quarter of 2023, 28 provinces and cities across the country will issue 1The 39 trillion yuan of special refinancing bonds were used to repay the existing debt, significantly higher than the average issuance size of 420 billion yuan in the past three years. With the acceleration of policy support for localized bonds, many urban investment platforms have chosen to repay in advance. In the fourth quarter of 2023, with the large-scale issuance of special refinancing bonds, the average monthly scale of the prepayment vote of urban investment bonds reached 25.9 billion yuan, a significant increase from the monthly average of 3.5 billion yuan in the first three quarters. With the support of special refinancing bonds and other policies, the stock of urban investment bonds of urban investment platforms in Guizhou, Hunan, Tianjin and other places in early 2024 will decrease significantly compared with mid-2023. As of January 5, 2024, the stock of urban investment bonds in Guizhou, Hunan, Tianjin and other places has decreased significantly compared with the middle of 2023;Among them, the stock of urban investment bonds in Guizhou has been resolved more, and its stock of urban investment bonds at the beginning of 2024 is about 220 billion yuan, a decrease of more than 30 billion yuan from the stock in mid-2023.
Q2: What are the characteristics of this round of localized bonds?Policy support is more targeted and more coordinated, and the transformation of urban investment has also been accelerated. The current round of policy support for chemical bonds is more targeted, and the scale of special refinancing bonds in key debt areas is larger and the maturity is longer. The Midwest and Northeast regions accounted for about 86% of the special refinancing general bonds issued in 2023, up from the average of 40% in the past three yearsThe central and western regions and the northeast accounted for about 75% of the special refinancing special bonds, higher than the average of 32% in the past three yearsAt the same time, the maturity of special refinancing bonds in Northeast China is longer, and general bonds and special bonds are relatively more distributed in 10Y and 30Y. In the process of debt resolution in this round, policy coordination may be greater, and follow-up monetary tools may cooperate with fiscal policies to jointly support key provinces and cities to turn into debt. In early November 2023, the governor of the central bank stated that "if necessary, the People's Bank of China will also provide emergency liquidity loan support to areas with relatively heavy debt burdens" or pointed to innovative monetary tools such as inclusive small and micro enterprise credit support tools and support programs, or one of the reserve policies to support localized bonds. In addition,The transformation of financial institutions to support chemical bonds and local urban investment platforms has also accelerated.
Three questions: In 2024, how to deploy localized bonds?Debt resolution and deployment take into account both the long-term and short-term, and at the same time pay attention to industrial construction. In 2024, the supervision of curbing new hidden debts may be further upgraded. In 2023, the Ministry of Finance's supervision of local new hidden debts and false debts has penetrated to the level of county-level ** and local financial institutions. The work conference of the State Administration of Financial Supervision focused on strengthening the "five major supervisions" and accelerating the coordination of central and local supervisionThe work conference of the Ministry of Finance also prevented and resolved local debt risks from the aspects of "improving the system of living a tight life", "strictly implementing the measures to reduce debt", and "improving the long-term mechanism of debt". In 2024, the focus of the work of key provinces and cities may be on risk prevention, with a new local bond limit or a smaller limit, and more special refinancing bonds will be issued to promote the work of chemical bonds.
Key takeaways:
Review of strategic trends:On the Korean Peninsula, the ROK military said that on January the DPRK army conducted artillery fire on the western part of the Korean Peninsula and the waters north of Baeknyeong Island and Yeonpyeong Island, the DPRK side said that it did not actually shoot on the 6th, but only simulated artillery bombardment to test the ROK army's detection capabilities. An intuitive interpretation of the actions of the North Korean side is,On the one hand, North Korean military shelling in response to the just-concluded joint military exercises between the United States and South Korea, and on the other hand, because of the approaching parliamentary elections in April, this move could shape the image of South Korea's conservative Yoon Suk-yeol** administration (1) leading to increased security risks on the peninsula and (2) difficult to ensure South Korea's security, which in turn will affect South Korean voters' decision-making.
North Korea's adjustment of its basic policy toward South Korea at the end of December 2023 mainly reflects the changes in North Korea's long-term strategic situation, and does not mean that it will strike South Korea militarily in the short term. At the end of December, the Ninth Plenary Session of the Eighth Central Committee of the Workers' Party of Korea (WPK) was held, and (1) "North-South relations" was revised to "Korea-ROK relations."The nature was changed from "kinship" to "hostile relationship".；(2) No more seeking "reconciliation and reunification". In response to the institutional reform of the DPRK**, on January 1, DPRK Foreign Minister Choe Son Hui held a meeting with Ri Son Kwon and other staff members of the DPRK Department for Relations with Yugoslavia.
With the successful launch of a military reconnaissance satellite by the DPRK in November 2023,North Korea's nuclear strike capability (which means independent deterrence against the United States and South Korea) has gradually improved, and security concerns have been reduced。In addition, it is possible to take a hard line on South Korea in one step, get rid of the restrictions of the "same race" narrative, and have more policy space in the work of DPRK-US relations.
Key takeaways:
Overall performance of the secondary market:U.S. Treasury yields**, the adjustment of the Chinese dollar bond market, the interest rate differential with the U.S. Treasury bond rose, and the onshore and foreign interest rate spread narrowed.
Key Industries:Financial sector: financial investment-grade bonds closed down, AT bonds fell sharply, the spread with U.S. bonds narrowed, and the spread between domestic and foreign interest rates rose. Urban investment bonds: Urban investment bonds continued to rise, with the overall increase being stable, the spread with U.S. bonds narrowed, and the spread between domestic and foreign interest rates declined. Real estate bonds: onshore bonds**, overseas investment-grade real estate bonds were stable, and high-yield bonds rose significantly. This week, commercial housing transactions slowed down, and second-hand housing transactions strengthened month-on-month.
Primary Market Dynamics:There were few new issuances, and the main issuers were local state-owned enterprises.
Investment Advice:Pay attention to investment opportunities in the Chinese dollar market for central state-owned enterprise real estate bonds, high-rated urban investment bonds and financial sector bonds. The market expectation of interest rate cut has stabilized, and the US dollar bond market is short-term**. The fundamentals of China's real estate industry are steadily improving, the promotion of the "three major projects" is expected to support real estate and fixed asset investment, and the housing purchase policy is expected to continue to optimize to promote the recovery of demand. The performance of the urban investment bond market is stable, the yield trend is downward, and the interest rate spread between domestic and foreign is still at a high level. Bond yields in the financial sector have risen in the short term, the spread with U.S. bonds has narrowed, and the spread between domestic and foreign interest rates has been stable.
Key takeaways:
Whether there is room for short-term interest rates to fall depends on whether the central bank's monetary policy can be further relaxed (causing the funds rate to fall), or whether the funding level can continue to remain stable and loose for a long time in the future (the carry strategy makes the short-end interest rate continue to fall). In the future, considering that the disturbance of ** bond issuance may still exist, the capital side may fluctuate in the future, thereforeWhether or not the central bank cuts interest rates is a core factor in pricing short-term interest rates.
If the central bank cuts interest rates and the funding level falls along with the policy rate pivot, then the short-end interest rate will fall significantly and the yield curve will steepenIf the funding level converges slightly, then there will be a slight adjustment in short-end interest rates and a rise in long-end interest rates, and the yield curve may first flatten and then steepen. If the central bank's interest rate cut expectations are disappointed and the funding level continues to remain stable, then the interest rate will show a bullish trend, and the period of interest rate decline in the early stage may be adjusted moreIf the level of funds also converges at this time, then the short- and medium-term interest rate adjustment may be more.
For long-end interest rates, the downside of long-end interest rates has been opened up after short-end rates fell sharply at the end of the year, and in the past week, although long-end rates have fallen more than short-end rates, the 10-year Treasury rate has also fallen to 251% less, butLong-term interest rates still have a slight downside。However, in the case of accumulating large profits in a short period of time, it is recommended that investors can be moderately cautious, and the duration should not be too high (it is recommended to keep it average), and the short-term volatility may increase.
Key takeaways:
MR industry chain debt conversion inventory. 1) Hardware chainAmong them, silicon-based OLED screens have become a hot spot in the current market due to potential domestic substitution. In the convertible bonds, the targets that have direct cooperative relations with Apple's MR products include Huaxing and Luxshare;In addition, as a potential supplier of Apple's micro OLED screen, SeeYA Technology can also pay attention to the Jingce and Yirui associated with it, and must be wary of the possible redemption risk of some targets2) Apply the chainThe new ecology created by Apple's MR is also expected by the market, which is expected to further drive its application in cultural tourism, performances, games, etc., and the relevant targets of debt conversion include Silk Road, Fengyu, and Dafeng, which are worth continuing to focus on. In addition, such as:If Apple's MR equipment sales exceed market expectations, it is not ruled out that other domestic 3C brands such as Huawei may follow up synchronouslyto bring investment opportunities to related industrial chain targets.
Convertible Bonds:Focus on low-end opportunities. Although the bond market has been rushing since December, due to the poor performance of the equity market, the valuation of the convertible bonds has fallen again after the rapid equity **, and the ** cycle has shortened, suggesting that the market confidence is insufficient. In terms of strategy, historically, every adjustment is an opportunity to increase positionsThe median of the former convertible bonds** is less than 117, which is around the 10% quantile in the past 22 years, and various valuation indicators are also at the low level in 22 years。In terms of industry, the sector with better performance is preferred, and the second industry trend can also be paid attention to.