20160129-兴业证券-Annual_Report_27页_918kb

2016 Macro-Economy Annual Report Summary

Global Economy: Is the Dog Barking Up the Wrong Tree?

Core Content

The global economy in 2016 is expected to face significant challenges, with the U.S. Federal Reserve's monetary normalization and the European Central Bank's (ECB) potential policy shifts being key concerns. The report outlines two major risks: the Fed's rate hike and the ECB's possible exit from quantitative easing (QE).

Main Points

• Fed's Rate Hike: The Fed is anticipated to raise interest rates, marking the first increase in 9 years due to the declining U.S. unemployment rate. However, the recovery is fragile and has been largely driven by previous accommodative monetary policies.
• Monetary Normalization Impact: The normalization process is expected to bring uncertainties to the U.S. economy and financial markets, as the repaired household balance sheets were largely due to prior loose monetary policies.
• ECB's QE and Global Capital Flows: The ECB is under pressure to adjust its QE strategy as credit expansion and peripheral economic improvements may not justify further monetary easing. This could lead to increased volatility in global markets, particularly in the U.S.
• Commodity Prices and Inflation: The report suggests that while commodity prices have been weak, their low levels may limit further declines. Core inflation, which excludes commodities, is expected to rise, making it a better indicator of economic performance than headline CPI.

Key Risks

• Black Swan 1: ECB Policy Shift: A potential tightening by the ECB could lead to a liquidity squeeze in the U.S. market.
• Black Swan 2: Commodity Price Volatility: A rebound in commodity prices could influence CPI, but weak global demand may limit such an effect.

China Economy: Tackling the Liquidity Trap

Core Content

China's economy faces an uphill battle in the first quarter of 2016, with weak exports, real estate investment, corporate profits, and rising non-performing loans (NPLs) contributing to downward pressure. However, the government is expected to implement measures to stimulate credit expansion and support economic recovery.

Main Points

• Weakness in Q1 2016: Exports and real estate investment are expected to remain sluggish, while corporate profits and NPLs worsen.
• Liquidity Trap: The liquidity trap is fading due to accommodative monetary policy, with the PBOC expected to expand credit supply and lower funding costs for commercial banks.
• Credit Easing as a Game Changer: The report highlights credit easing as a key policy tool to support economic growth, especially in the second half of 2016.
• Fiscal Stimulus: The government is shifting focus from large-scale infrastructure investment to social welfare projects and tax cuts, especially for SMEs and emerging industries.

Key Policies

• Monetary Policy Adjustments: The PBOC is introducing new tools (SLF, MLF, PSL) and a new interest rate corridor system to manage liquidity and reduce funding pressure on banks.
• Fiscal Innovations: New fiscal tools such as bond for debt swaps and policy bank loans are expected to supplement budgetary money, supporting economic growth without increasing the fiscal deficit too rapidly.

China Financial Market Outlook: Fill in the Blanks

Core Content

China's financial market is undergoing transformation, with the development of hybrid financial instruments and the entry of new market players playing a crucial role in improving market depth and stability.

Main Points

• Financial Innovation: The expansion of financial instruments, particularly hybrid assets (equity and bond features), is expected to continue, driven by the hunt for yield.
• Market Volatility: The shift from traditional assets to new financial instruments has led to increased market volatility, but this is seen as a short-term phenomenon that will eventually enhance market stability.
• New Players: The introduction of new market participants is expected to diversify funding sources and improve financial market stability.
• Interest Rate Liberalization: The decline in FX inflows has prompted interest rate liberalization, with a focus on lowering down payment ratios and mortgage rates to stimulate housing demand.

Key Signals

• Housing Demand: The high down payment ratio (30%) and mortgage rate (5%) indicate significant potential for growth in the housing market if these are reduced.
• Consumer Spending: Private consumption has become a key economic stabilizer, with increased spending on entertainment and travel.
• Financial Institutions' Support: Financial institutions are providing more support to the household sector, including increased consumption and mortgage loans.

Conclusion

The report highlights the global and Chinese macroeconomic outlook for 2016, emphasizing the risks of monetary normalization and the potential for financial innovation to stabilize markets. In China, while the first quarter presents challenges, the government's policy measures are expected to provide support for economic recovery and financial market depth in the second half of the year.