The March 16, 2022 meeting of the Financial Committee solidified confidence leading the market surge, and Hong Kong stocks and Chinese stocks also saw a major reversal after consecutive big declines. However, Chinese stocks still face a lot of uncertainty due to the war between Russia and Ukraine, the Federal Reserve's interest rate hike, and the Foreign Company Accountability Act's inclusion of five Chinese listed companies in the U.S. on the "temporary delisting list".
How will the future develop? Baidu's "Hard View" column invited Hu Jie, Professor of Practice at Shanghai Advanced Institute of Finance, Shanghai Jiao Tong University, and Guan Qingyou, President of RuYi Financial Research Institute, to explain.
The Financial Committee meeting draft is not long but rich in content to give the market a piece of mind
Guan Qingyou said that the previous period of Hong Kong stocks, A-share trend is very worrying, not just the index up or down, but has been out of the fundamentals and listed companies. Leading Internet companies are falling almost regardless of the cost, Guan Qingyou judged that this may be a situation of organized shorting by institutions.
"The process of their (shorting agencies) profit is actually built on these markets paying a heavy price and even generating systemic risk to achieve." Guan Qingyou stressed, "Just like some so-called international investment moguls sniped the Thai baht in '98, including sniping the foreign exchange market in Malaysia, leading to a major economic regression in those countries. Hong Kong stocks and A shares should effectively prevent this situation."
In the view of Guan Qingyou, this Finance Committee meeting is very grounded and responsive to everyone's concerns, and the issues addressed are very specific. "And professional and specific, and what was said was also very straightforward and understandable to everyone, and subsequently the market gave a very positive response."
This meeting mentioned macroeconomic stability, the economy in the first quarter, suggested that monetary policy should be proactive, and also mentioned real estate, platform economy, Hong Kong stocks and A shares. According to Guan Qingyou, it is particularly noteworthy that it also emphasized that the relevant departments should effectively assume their responsibilities and actively introduce policies that are beneficial to the market. The People's Bank of China, the Securities Regulatory Commission and the Banking and Insurance Regulatory Commission also quickly studied and implemented the spirit of the Finance Committee meeting, which is indeed a reassuring pill for everyone.
Hu Jie, on the other hand, believes that the draft of the Financial Committee meeting, although not long, is very informative and addresses some of the previous market concerns. The expression "marketization, rule of law and internationalization" is of particular interest.
In Hu Jie's view, there are three major uncertainties behind the previous ups and downs in the financial market: a causal factor, an internal factor and an external factor.
The trigger was the SEC's announcement that it had placed five Chinese companies listed in the U.S. on its "provisional delisting list" under the Foreign Company Accountability Act.
The external cause is the Russia-Ukraine conflict, which has dealt a huge blow to financial markets around the world, except for a small number of asset classes and some special markets like the U.S. dollar and U.S. stocks, which have been hit hard around the world.
The internal cause is the financial committee meeting mentioned the "market, rule of law, internationalization" is relatively insufficient, "investors are afraid of the rules are not clear, rather than the rules are strict." Hu Jie stressed.
Russia-Ukraine conflict profoundly affects international institutional asset allocation
Guan Qingyou mentioned that the recent situation in Ukraine has touched the nerves of the market, and although the situation has eased recently, the future is still unclear, while a series of chain reactions will be generated.
Hu Jie also said that the consequences of the Russia-Ukraine conflict are ongoing and structural, and will not be eliminated as the event itself subsides. "In the past it was the era of pan-globalization, you are good friends with me, I'm not so good with him, but I don't care if you do business with him." Hu Jie believes that the Russia-Ukraine conflict has changed this situation and will have a lasting impact on the world, which every country will have to face.
Hu Jie believes that the "Russia-Ukraine conflict" is a relatively significant parameter for the future of financial markets and economic development, the company is still the same company, but the market for its valuation will be adjusted accordingly. "In Hong Kong stocks, for example, foreign investors hold about 50 percent by market value. If they face uncertainty, they will choose to divest or sell off." Hu Jie stressed.
Guan Qingyou pointed out that, in the face of dramatic external environmental changes, the institution to the bag for peace, cash is king is an instinctive response. This is mixed with market reasons, policy reasons, but also includes the reasons for diplomatic games. In the past, the market did not understand enough about the 100-year change and did not expect so many conflicts to occur. Going forward, the analysis of sectors and companies will need to be adjusted significantly, and this will profoundly affect the asset allocation of international institutions. So, the next step is to continue to remain calm and cautious about the market.
There are two reasons behind the Foreign Company Accountability Act (FACA) The return of Chinese stocks to delisting is not a good option
Hu Jie said the Foreign Corporation Accountability Act has very little flexibility as a passed bill, and all that remains is the issue of implementation, unless it goes back to the congressional legislative level for some more amendments.
In its view, there are two reasons behind this, one is that we have a lot of companies listed in the U.S. itself really do not compete, to a certain fortunate representative of the company itself there is a lot of financial falsification, really damage the interests of investors. On the other hand, the past few years have seen an increase in friction between major powers, and things that were not a matter before have now become a matter.
However, the good thing is that the March 16 Financial Committee meeting also made it clear that the Chinese and U.S. regulators have maintained good communication, have made positive progress, and are working to form specific cooperation programs. The Chinese government continues to support all types of enterprises to go public outside China.
According to Guan Qingyou, based on practical considerations, the return of Chinese stocks will face a series of problems. Hu Jie also believes that "coming back" is not a good option.
Guan Qingyou said that it would be a good thing if the Foreign Company Accountability Act was introduced in response to some undisputed listed companies. "You can't fake anywhere, and going out to fake is not only disgraceful, but also affects the whole Chinese stock."
Hu Jie re-emphasized that strict regulation is not a problem, strict is a good thing. "The regulation of our financial markets, often strict legislation, loose enforcement, many problems are caused by the lack of strict. A very serious counterfeiting, a fine of three glasses of wine, the penalty or 'Maotai'. A very serious counterfeiting, a fine of 200,000 yuan to solve the problem, while in the United States, the actual controller may have to go to jail."
A shares of Hong Kong stocks how to go? Policy landing situation will verify the bottom
Hu Jie said that the previous factors driving the pessimism of Hong Kong stocks and A-shares are consistent, the difference lies mainly in the technical level, one is that Hong Kong stocks do not have a down board, the other is that Hong Kong stocks have more foreign investment, about 50% of the market value of Hong Kong stocks. Foreign investors are more based on their own investment philosophy, following their own investment philosophy guidance. But Hong Kong stocks and A-shares at the moment there are common micro, meso, macro, and even super macro worries.
In Hu Jie's view, if you look at the Earth from an alien planet, as a super macro economy, the Earth is undergoing great changes. There is a lot of uncertainty at the hyper-macro level at the moment, which has led to pessimism in the market.
As for whether it is a golden pit now? Hu Jie said that the spirit of the Financial Committee meeting to land is very critical, the policy landing situation will verify whether it is really the bottom. Guan Qingyou also pointed out that, from past experience, it can not be said that the bottom immediately and completely, because the policy to the market there is a process.
The Fed routinely raises rates by 25 basis points and does not want to send special signals
Talking about the Fed's March rate talks, Guan Qingyou made it clear that the rate hike would not change U.S. inflation. In his view, U.S. inflation is not caused by infinite easing, but by the contraction of the production side, the supply chain disorder under the influence of the commodity cycle.
Hu Jie said, if there is no Russia-Ukraine conflict this time the Fed is likely to raise interest rates by 50 basis points, because the European economy has been hit by a relatively large direct impact, will be refracted to some extent to the United States. In its view, the Fed's basic logic on the issue of interest rates is to look at the "1 + 2 indicators". "1" is the price index, the most typical is the CPI. two other indicators are also more important, one is the unemployment rate, the other is the economic growth rate.
The Fed's judgment on the U.S. economic situation is that it's time to return to normalcy. What is its normal? Inflation should fall back to 1% to 2%, economic growth at 1% to 2% level, good times to 3%, unemployment rate down to below 6%.
Hu Jie said that the matching benchmark interest rate should also fall, that is, the ten-year interest rate should be in the 2% range. After the Fed enters the pace of interest rate hikes will be all the way up, if there are no special circumstances, will be along 25 basis points, step by step has been added to about 2%.
Under what circumstances would a single 50 basis point rate increase occur? Hu Jie said that when the Fed wants to send a signal to the market will use 50 basis points, that means to the Fed before the misjudgment. "If the Fed does not misjudge, it will always be 25 basis points. If you want to tell Wall Street that you look away, you will first go up 50 basis points meaning." Hu Jie said.
In addition, there is another scenario, like a catastrophic external shock in March 2020, where the interest rate drops to zero at once, which is 75 basis points. "That's the special case, the regular time, when you don't want to send special signals in general, is 25 basis points." Hu Jie stressed.
Guan Qingyou concluded that macroeconomic management, industry management and financial supervision should be people-oriented, not forgetting the original intention, and should also serve the people. In the time of violent turmoil in the international market, we hope to introduce more policies, thus playing a role in supporting the market and boosting confidence.
This article originated from the financial sector