China ** newspaper reporter Guo Minjun.
2023 is coming to an end, and we are about to usher in a new 2024. What is the outlook for the global economy in the new year?How should investors approach global asset allocation?What are the prospects for China?In this regard, a reporter from China ** Daily interviewed Hong Hao, chief economist of Sirui Group.
The market is overly optimistic about the US economy
In its 2024 outlook report, "No Return", the company's base case scenario is a "soft landing" for the U.S. economy and the end of the Fed's tightening cycle. Hong Hao said that this is undoubtedly a good news for the global economy.
Despite this, Hong Hao believes that from the perspective of the economic cycle, the current market expectations for the U.S. economy are too optimistic, and the probability of the U.S. economy falling into recession in 2024 is still much higher than many people imagine. He pointed out that the current bullish argument for the US economy is that its unemployment rate is low, but in reality, a recession will bring a spike in unemployment, and it is not the unemployment rate that signals a recession. This has been the case in past recessions, and the lessons are not far away. Especially given the lagged effects of the Fed's aggressive tightening, which will also "last longer" in this economic cycle.
At the same time, Hong Hao said: "We are seeing that the data represented by the leading economic indicators (LEI) in the United States show signs of slowing down in the United States economy. Although this downward trend has not yet been reflected in US equities, in fact, the latest US leading economic indicators for November were the only positive contributors. ”
In 2024, U.S. households are likely to quickly deplete the excess savings they have accumulated during the pandemic, Hong said. And since the pandemic, this part of the savings has been a strong defense against the Fed's tightening policy. As a result, for an economy that derives 70% of its economic output from consumer spending, recession warnings have not been fully lifted as the market had hoped. Recently, preliminary data from Mastercard Spending Pulse shows that the retail sales growth in the 2023 U.S. holiday season has slowed down significantly compared with the same period last year, and consumers are becoming picky and striving to find cost-effective and high-quality products.
At the same time, Hong Hao pointed out that the high interest rate environment has discouraged new loans, which in turn will lead to problems in refinancing. In particular, if the Fed delays in cutting interest rates or lower-than-expected rate cuts, and mortgage rates fall only limitedly, real estate, which is an interest-rate sensitive sector, may continue to be suppressed by the "lock-in effect", that is, homeowners who lock in low interest rates are reluctant to sell their homes for replacement, which will not be conducive to releasing supply, revitalizing second-hand housing resources and improving the liquidity of the real estate market. In fact, the current shortage of real estate in the United States is still a major factor restricting the recovery of the property market.
However, Hong Hao said: "We also saw that the latest new home starts in November were unexpectedly strong, a leading indicator that may signal a recovery in the supply of the U.S. housing market, and if the Federal Reserve cuts interest rates as scheduled, it will help demand stop falling and stabilize, and U.S. real estate sales will pick up." ”
Focus on the allocation of U.S. bonds and **
The scenario of the Sirui Group** is that the U.S. economy is still likely to enter a recession in 2024, and U.S. stocks will peak and fall. "Signs of slowing economic growth and recession expectations have made us more cautious about the U.S. as a whole," Hong said. As long-term interest rates peak and fall, the valuation of enterprises represented by growth companies has expanded, driving valuations upward, but this has nothing to do with fundamental factors, but macro factors have changed, resulting in changes in the market. In particular, market participants are more inclined to speculate on these companies in an environment of looser monetary conditions, which is also a time for further risk accumulation. Therefore, there is a high probability that U.S. stocks will first hit new highs and then go down. ”
In view of this, Hong Hao suggested that as the Fed's interest rate policy shifts, it will increase bets on U.S. Treasuries.
At the same time, he believes that as an alternative asset and ultimate rival of the dollar, this round will undoubtedly be historic. Especially in 2023, in the case of a strong dollar, **will not change its resilience and change**, which is not only due to the problem of US dollar credit, but also indicates that **has become the protagonist of market rotation, so Sirui Group will focus on its allocation in 2024.
From the perspective of long-term allocation, Hong Hao believes that China's government bonds should also have a place, especially considering that China's ** and government bonds still maintain a normal negative correlation. Holding Treasury bonds is a meaningful diversification for ***. In addition, some high-quality, energy-based commodities should also be involved.
As for risks, Hong Hao believes that investors should pay close attention to the risk of a recession in the United States, the risk of a weaker-than-expected Fed policy pivot, and geopolitical risks.
Fiscal policy will be the ballast stone for China's growth
For China's economy, Hong Hao believes that 2024 is likely to be a continuation of 2023, and the overall economic operation is still focused on solving some stock problems. Sirui Group expects China to achieve its economic growth target of 5% in 2023 and 5%-5% in 20245% growth level.
Regarding macro policy, Hong Hao said: "On the one hand, at this stage, we see China's monetary policy re-entering the expansion range to support China's economic recovery, and there is no doubt that the PBOC has a wide space to expand its balance sheet. On the other hand, monetary policy should have less impact on 2024 than fiscal policy. ”
Hong Hao said that in fact, liquidity in 2023 has been very abundant, both the interest rate level and the growth rate of M2 have been fully reflected. As liquidity growth normalizes, fiscal policy is likely to be entrusted with a more critical growth ballast. As the economic cycle bottoms out and recovers, there is still a need for more powerful catalysts to effectively reverse market confidence and expectations. "In 2024, we may need to place more emphasis on fiscal expansion to deliver the multiplier effect of policy and find a clear path to recovery in 2024," he said. ”
Hong Hao believes that similar to 2023, the three carriages that will drive the economy in 2024 still have different degrees of problems to deal with.
Regarding exports, Hong Hao pointed out that the growth rate of exports denominated in US dollars will begin to show an upward trend in the second half of 2023, partly due to the resilience of overseas demand and consumption, but if the global economy represented by the United States and Europe cannot avoid a recession in 2024, China's exports will inevitably be suppressed. At the same time, China and Russia** will grow rapidly in 2023, becoming the main contributor to China's exports along the "Belt and Road", and this trend is expected to continue in 2024.
As for consumption, Hong Hao said: "In 2023, expanding domestic demand has always been the top priority of economic work, and consumption is also struggling to evolve along the path of recovery recovery. At this stage, we see a rapid growth in travel and service-related consumption, which supports the tertiary industry. Expanding domestic demand in 2024 is still the essence of consumption recovery. ”
In terms of investment, Hong Hao said that from 1950 to the present, especially from 1990 to the present, China's economic growth has been mainly driven by investment, in fact, half of China's GDP growth from 1950 to 2019 was driven by investment, which is also unique in human history. "At present, we see that manufacturing production continues to recover, and investment growth has also improved," he saidWith the concrete implementation of the additional issuance of government bonds, infrastructure investment should also provide a helping hand for economic growth in the early 2024The recovery of nearly half of the investment in real estate will not happen overnight. Generally speaking, in 2023, the first part of expenditure will not be fully exerted due to the consumption of the epidemic for three years, which is why we hope that the investment side can see fiscal expansion in 2024. ”
A-shares are showing a bottoming upward trend
Hong Hao believes that at this stage, the A** field is obviously at the bottom of the cycle, showing a trend of bottoming up, but this round of bottoming process is longer than expected.
He said that after the baptism of rising and then falling in 2023, the tide rises and falls, the current market's first reaction is decoupled from the marginal changes in fundamentals, after all, the recent domestic economic data as a whole has picked up, and the policy direction is clear and clear, but the market reaction is tepid.
"Having said that, the establishment of the bottom does not mean that there will be a V-shaped ** immediately, and more catalysts are still needed to reverse the market's confidence and expectations," Hong said. It's just that the current downside is much smaller than the upside, or the risk is much smaller than the expected return, and mean reversion is the most fundamental principle of the financial market. This requires us to hold on to the green mountains and maintain our concentration. ”
Hong Hao pointed out that in 2024, if the interest rate gap between China and the United States narrows as scheduled, it should be a good opportunity for both A-shares and Hong Kong stocks, but it is still not easy to expect overall systemic opportunities. However, it is precisely this kind of range trading that requires micro subjects to give full play to their subjective initiative to add value, that is, the well-known alpha, just like the challenging year of 2023, in addition to the *** at the beginning of the year, there are still many opportunities for differentiation, such as new energy, AI, Beijing Stock Exchange, etc. In 2024, the opportunities and volatility of this divergence will continue. At the same time, it is also necessary to pay attention to grasp the impulse type**, which mainly comes from the fiscal force.
Hong Hao believes that in 2024, the main investment opportunities should be concentrated in high-tech sectors such as semiconductors and high-end manufacturing, as well as some sectors that are sensitive to interest rates.
The renminbi is bottoming out ahead of the economic cycle
In 2023, the RMB exchange rate has experienced a trend of first rising and then falling. At the beginning of the year, the renminbi strengthened against the US dollar all the way to 6 since the reopening of major countries7. With the Fed's rapid interest rate hikes, it quickly became invincible.
Looking ahead to 2024, Hong Hao believes that the Fed's benchmark interest rate will soon fall in view of the market has begun to rush ahead of the Fed's expectation that the Fed will end its tightening cycle and start cutting interest rates, while the People's Bank of China maintains a relatively loose monetary policy to support economic growth, and the trend of unprecedented widening of interest rate differentials between China and the United States this year will inevitably reverse. With the arbitrage returns between U.S.-China assets seemingly peaking and turning around, the renminbi's real effective exchange rate has hit a cyclical low, and the renminbi's historic weakness at its peak will also revert to the mean. These reversals will help the RMB exchange rate to be restored, and the exchange rate factors that suppressed ** valuations in 2023 will improve.
At the same time, he said: "Further strengthening of the exchange rate is still supported by growth expectations. As China's economic cycle bottoms out, the exchange rate, as a leveraged and super-sensitive asset class that is highly sensitive to the economic cycle, is bottoming out ahead of the economic cycle. ”
Edit: Captain's Review: Muyu