Zheng Lianghai is a member of the China Chief Economist Forum and the chief economist of Fuanda**
2024 is just around the corner, and at the end of the year and the beginning of the year, it is necessary to review the past year and at the same time give a brief outlook for the next year.
1. Review of 2023
In our 2023 outlook at the end of 2022, we put forward the view of certainty versus uncertainty, especially the determination of the certainty repair and uncertainty of the slope of repair in the domestic economy. Looking back now, the determination has been basically verified, except that all major overseas economies have not all entered a recession period.
Economic situation in 2023
Judging from the economic situation in 2023, economic certainty has rebounded, and the GDP growth rate in the first three quarters of 2023 will be 52%, the annual target set in the work report for the completion of this year is basically determined. On the whole, 2023 is a year of economic recovery after the three-year transition of new crown epidemic prevention and control, the macroeconomic recovery is structural, the overall performance of consumption is not as strong as expected, real estate sales and investment have declined on the basis of last year's decline, the growth rate of infrastructure investment is high and low, the growth rate of manufacturing and industry shows a certain resilience, external demand shows a certain resilience, and the growth rate of exports returns to positive at the end of the year under the superimposed base effect.
Overseas, the United States will definitely enter the end of interest rate hikes in 2023. In the 8 interest rate meetings this year, the Fed raised interest rates 4 times, nearly halving from last year's 7 meetings, with an average of 25bp each time, totaling 100bp, and the rate hike was also significantly slower than last year's 425bp. Among them, interest rates were raised three times in the first half of this year, and interest rate hikes were suspended in JuneIn the second half of the year, only one rate hike was raised in July, and three consecutive pauses in the second month. This round of interest rate hikes has been 11 times since March 2022, with a range of 525bp. However, despite the rapid increase in interest rates, the U.S. economy has shown strong stamina, especially employment and consumption. The eurozone, especially the leader Germany, is in a shallow recession, and Japan is coming out of the "lost two decades" of the past, with inflation returning to the rally.
Major asset classes and the domestic bond market in 2023
From the perspective of major asset classes, under the international economic resilience and inflation exceeding expectations in the first half, the US Treasury yield and the US dollar index will rise first and then fall in 2023, ** rise, and oil prices will fall. In the first half of the year, driven by AI technology and the expectation of interest rate cuts in the second half of the year, major overseas stock indexes are dominated by **.
From the perspective of the review of the domestic bond market in 2023, interest rates will continue to rise from the beginning of the year to the Spring Festival;From the Spring Festival to late August, the bond market began a five-month bull marketSince late August, interest rates have generally risen **, but the short end has risen more, the long end has been relatively passivated, and the curve term spread has narrowed to the limit.
2024: Finding certainty
* The economic work conference made it clear that next year's economic work should "further promote the economic rebound and improve, and face some difficulties and challenges that need to be overcome." The main reasons are the lack of effective demand, overcapacity in some industries, weak social expectations, more risks and hidden dangers, there are blockages in the domestic circulation, the external environment is complex and severe, and the uncertainty is rising", "but the favorable factors facing the development are stronger than the unfavorable factors, and the basic trend of economic recovery and long-term improvement has not changed". We believe that the recovery of the economy will continue in 2024 and seek more certainty opportunities in the layout of large asset classes.
The domestic economy continues to recover
From the perspective of the domestic economy, since the Politburo meeting at the end of July 2023, the policy of stabilizing growth has continued to strengthen, which is reflected in the monetary policy interest rate cut in August and September, the conversion of the interest rate of the existing housing loan, and the new round of reduction of the deposit interest rateThe fiscal policy is to issue trillions of special refinancing treasury bonds and issue additional trillions of treasury bonds, and at the same time issue the 2024 local ** debt limit in advance, and fiscal spending will be more activeThe real estate policy implements the "recognition of housing but not loan", lowers the down payment ratio and the adjustment of the interest rate of the existing housing loan, and cancels the land price limit, etc., and the implementation of local policies has been accelerated. With the development of macro policies, the economy in the first half of 2024 will continue the improvement momentum since the second half of this year, fiscal policy has become the main focus on stabilizing growth, monetary policy remains accommodative, providing a stable financial environment, and RRR and interest rate cuts are still possible. The key to the current policy is how to improve the expectations of micro subjects, so that enterprises and households can re-enter the ranks of expanding their balance sheets and increasing leverage, which will be the key to whether the stable growth policy can be effectively implemented, and it is also the core that determines the success of macroeconomic growth in 2024.
Certainty in the world economy is slowing
In 2023, advanced economies will be more resilient than market expectations will be, but growth will slow in 2024 as interest rates remain high, inflation falls and economies continue to cool. As the Federal Reserve cuts interest rates and capital returns, emerging markets will face a more favorable growth environment. However, the slowdown in economic growth in advanced economies as consumer countries also means that demand for emerging economies has fallen. And if the growth rate of advanced economies with a large proportion of the economy falls, it will also lead to a slowdown in the level of global growth.
The International Monetary Fund (IMF) expects global economic growth to grow by 3.3 in 2024 compared to 20230% slowed down to 29%, down 01 percentage point. For advanced economies, growth is expected to be 15% and is expected to grow by 1 next year4%, the same as the ** value in July this year;Emerging market and developing economies are expected to grow by 40% and 4 percent next year0%, and the growth rate next year will be 0 lower than the ** value in July1 percentage point. The OECD's economic outlook report also showed that the global economic growth forecast for 2024 was lowered to 27%。While global GDP is set to rise in 2024, growth will remain uneven across regions, with emerging market countries expected to generally outperform advanced economies, while Europe is expected to grow slower than major economies in North America and Asia.
Domestic fiscal policy is deterministic
* When establishing the tone of economic work in 2024, the economic work conference should "adhere to the principle of seeking progress while maintaining stability, promoting stability through progress, establishing first and then breaking down, and more policies that are conducive to stabilizing expectations, growth, and employment, and actively forging ahead in changing the mode, adjusting the structure, improving quality, and increasing efficiency, so as to continuously consolidate the foundation for stability and improvement." It is necessary to strengthen the counter-cyclical and cross-cyclical adjustment of macroeconomic policies, continue to implement a proactive fiscal policy and a prudent monetary policy, and strengthen the innovation and coordination of policy tools." The person in charge of the Central Finance Office interpreted the spirit of the ** Economic Work Conference, saying: "Stability is the overall situation and foundation, and more policies are conducive to stabilizing expectations, growth, and employment." Progress is the direction and driving force, we must be vigorous and enterprising, we must take the initiative to stand up what should be established, and resolutely break what should be broken on the basis of establishment, and constantly accumulate more positive factors to achieve overall economic and social stability." On the whole, seeking progress while maintaining stability and promoting stability through progress are dialectical relations between each other, and establishing first and then breaking down is not to give up new momentum and return to the old kinetic energy, but to break the old after establishing the new, so as to achieve high-quality economic development.
After the Politburo meeting was held at the end of July in the second half of this year, the fiscal policy continued to exert force in steady growth, mainly in the acceleration of fiscal spending, the issuance of trillions of national bonds and more than 1$3 trillion in special refinancing bonds. The additional issuance of trillions of treasury bonds will be completed in November and December this year, and 500 billion yuan will be used within the year, and 500 billion yuan will be used next year. It is expected that in the first half of 2024, the fiscal policy will be the mainstay, the fiscal deficit may break through, the local debt limit will continue to be implemented in advance, make up for the shortcomings of infrastructure such as disaster reduction and prevention, implement the transformation of urban villages, the construction of affordable housing, and the new three major projects of public facilities for both flat and emergency purposes. According to the practice in recent years, the Ministry of Finance usually issues part of the new local ** debt quota for the next year in advance, according to the information disclosed by China Bond Information Network, as of December 25, Shanxi, Hebei, Hainan, Jiangsu and other places have disclosed the local bond issuance plan for the first quarter of 2024. According to the current pace of fiscal development, it can be basically determined that fiscal policy will play a more active role in next year's steady growth.
Domestic monetary policy is accommodative in certainty
Monetary policy to maintain reasonable and abundant liquidity, the scale of social financing and the amount of money to match the expected target of economic growth and the level of the economy (compared with the previous use of "maintaining the growth rate of broad money and the growth rate of the scale of social financing to basically match the growth rate of the nominal economy", slightly adjusted), continue to promote the financing cost of social integration to decline steadily, we believe that the adjustment of deposit interest rates or will continue to advance, and it is still possible to cut the reserve requirement ratio and interest rate. The person in charge of the Central Finance Office explained the new meaning of the expression "the scale of social financing and the amount of money match the expected target of economic growth and the level of social financing", saying that the first is to rank the scale of social financing in front of the amount of money, because this indicator is more closely related to economic growth;The second is to change the previous "nominal economic growth rate" to "economic growth and the expected target of economic growth", which can better coordinate the target requirements of economic growth and the first level, and emphasize that the first level is an important regulation and control target of monetary policy.
In 2023, there will be two RRR cuts, two interest rate cuts, and three deposit listing interest rates. However, since the interest rate cut in mid-August, although the RRR was cut in September, the capital center has moved upward, especially the interbank certificate of deposit interest rate continues to be higher than the MLF interest rate, and the market has expectations for the RRR and interest rate cuts. We believe that the adjustment of deposit interest rates is expected to continue next year, and it is still possible to cut the RRR and interest rates under the demand for stable growth and the steady reduction of financing costs for social integration.
The real estate policy is determined
In terms of real estate policy, it will continue to relax throughout 2023, with the implementation of the policy of recognising houses without recognising loans on August 25, canceling the policy of restricting sales and purchases in various places to support rigid and improved demand, reducing the down payment ratio, and the central bank promoting the conversion of interest rates on existing housing loans, and in November, Guangzhou, Shenzhen, Beijing and Shanghai and other four first-tier cities have relaxed real estate policy restrictions, reduced the down payment ratio and additional interest rates, and adjusted the standards of ordinary residences. The Politburo meeting in July and the economic work conference in December emphasized that it is necessary to adapt to the new situation of major changes in the supply and demand relationship of China's real estate market, increase the construction and supply of affordable housing, and actively promote the transformation of urban villages and the construction of public infrastructure such as "flat and emergency".Meet the reasonable financing needs of real estate enterprises under different ownership systems without discrimination, improve relevant basic systems, and accelerate the construction of a new model of real estate development. In 2024, we believe that the relevant policies of the real estate market are expected to be deepened and refined until the market develops steadily and healthily, and it is expected that real estate sales and investment will bottom out and stabilize, but some medium- and long-term factors affecting the real estate market, such as income expectations, changes in supply and demand, deep transformation of the market structure, and changes in population growth and structure, will have a profound impact on the market.
Overseas Fed definitively cuts interest rates
The dot plot of the Fed's December meeting shows that the Fed raised its rate cut by 50 basis points next year – from 5 to 5 for the end of 2024125% to 4625%, which means that the Fed will cut rates at least three times in 2024, each with an assumed magnitude of 025 percentage points. While lower than the four rate cuts expected by Wall Street markets, they were more aggressive than Fed members had previously hinted at. The "dot plot" expected by individual committee members shows that there will be four more rate cuts, or a full percentage point, in 2025. Three rate cuts in 2026 will reduce the federal interest rate to 2%-225%, close to the long-term outlook.
According to CME's FedWatch tool, interest rate traders** are more aggressive than the Fed in how big it will cut rates in 2024, and the Fed is now expected to cut rates by 150 basis points next year.
In the view of other major economic central banks, the ECB's interest rate hikes will also continue to pause, but it will shrink its balance sheet in 2024, and the ECB announced in December that it will reinvest under its pandemic emergency purchase program (PEPP), a temporary asset purchase program that will be completed by the end of 2024. The market expects the Bank of Japan to also end the era of negative interest rates in 2024.
Investment in major types of assets: seek progress while maintaining stability
Looking forward to 2024, domestic assets are at a historical low, the anchor role of the bond market policy rate has strengthened, and although the yield will fall more in 2023, there are still more certain opportunities in 2024.
A**Field: Finding certainty
In 2023, ** did not follow the fundamentals to repair, after the first quarter**, the A-share market in the last three quarters of the year will be mainly adjusted, mainly due to the lack of sustainable thematic opportunities in the second half of the year after the successive performance of pro-cyclical, technology, and medium special valuation in the first half of the year. Mainly from the numerator side, the economic fundamentals have rebounded definitively, but the improvement momentum is not strong, the PPI negative range is running, and the denominator is looking at the domestic risk-free interest rate as a whole, and the market risk appetite has been suppressed to a certain extent, thus hedging the benefits brought by the external Fed's pause in interest rate hikes and even expected interest rate cuts next year.
In our view, understanding the market logic of current economic policies is different from that of traditional growth models. As China's economic growth enters a new era of high-quality development, it should abandon the traditional investment framework and look for new structural opportunities in medium-to-high-speed growth.
Looking forward to 2024, we believe that on the basis of seeking progress while maintaining stability, the annual tone will increase the annual tone of "promoting stability with progress, establishing first and then breaking", indicating the current demand for "progress" and stable economic growth. With the fiscal, monetary, and real estate policies working together, the economic momentum will continue to be repaired, and industrial transformation, manufacturing upgrading and technological innovation are still the main theme.
Bond market: Certainty of the policy rate anchor
In 2023, the bond market performed well against the backdrop of monetary policy easing and special refinancing debtization. After the interest rate cut in August, the capital center rose, the short-end interest rate rose, and the interest rate bond curve was flatUnder the new package of bonds, more than one trillion yuan of special refinancing bonds have been issued, the interest rate of urban investment bonds has fallen sharply, and the real estate market risk is still being cleared. Looking back at the bond market in the past 10 years, taking the yield of 10Y treasury bonds as an example, we issued unilateral bonds**, mainly in 2014, 2015, 2018, 2021, and 2023In 2013 and 2017, the bond market was dominated by **;2012 and 2016 (except for December (the most typical year (except for the year during the epidemic period (mainly the first three quarters of the downturn, the fourth quarter of the adjustment)**. As the monetary policy interest rate continues to fall, the event shock has become the main driver of bond market fluctuations, non-fundamental and policy research can accurately improve the trend, the macroeconomic growth rate from high-speed growth to medium-high speed growth, the transformation of industrial structure, the anchor of the policy interest rate on the bond market has been enhanced, the bond market yield is easy to fall and difficult to rise, and the volatility is reduced. Another ineffective rule of thumb is that interest rate differentials between China and the United States are referential, but in 2024, bilateral interest rate differentials are expected to narrow as US Treasury yields fall.
Looking ahead to the bond market in 2024, we believe that with the momentum of stable growth, macroeconomic recovery and monetary policy remaining accommodative, after yields fell rapidly to historic lows in December this year, even if there is a good start early next year, the bond market is expected to remain in a narrow range as the role of the policy rate anchor strengthens. The interest rate bond environment in the second half of the year may be better than the first half, but the second half of the year will depend on the recovery of fundamentals. Supported by the effect of the special refinancing bond policy, the interest rate spread of credit bonds has continued to compress, the safety of urban investment bonds has improved, and the cost performance has decreased, but compared with the policy interest rate on the debt side, there is still a certain interest rate spreadThe economic environment and credit environment have improved, and the opportunities for industrial bonds are higher than those for urban investment bonds.
Overseas asset outlook
From the perspective of overseas assets, under the opening of the Fed's interest rate cut channel, the U.S. Treasury yield and the U.S. dollar index are expected to continue to decline, and there is support for oil prices under the premise of weakening demand in the world economy, there is a possibility of further adjustment, but the complex and changeable international situation may bring many uncertainties to the market and commodities. According to historical experience, under the Fed's interest rate cut, the tidal function of the dollar is weakened, international funds are expected to flow back to emerging markets, and emerging market equity assets are more certain, although there are more U.S. stocks in 2023, and there is uncertainty in the valuation adjustment, but in 2024, if the U.S. economy avoids entering a deep recession, the Fed's interest rate cut channel will be opened in time, and technology stocks, especially AI model innovation, will continue to break through, and there may be limited room for adjustment. In addition, it is necessary to pay attention to the potential impact of overseas U.S. and Russia**.
Risk Warning: This article does not constitute any investment advice, nor does it constitute the inevitable basis for the management of **manager**, and investors operate accordingly at their own risk. The information in this article is based on public information, and no guarantee is made for its accuracy, completeness and timeliness.