Weekly Market Comments, Jan 31st 2021(Another Piece)
Asset bubble talk in China is never ending, but the latest mention of it caused a rise of o/n repo rate, which may signal some unexpected monetary policy shifts.
The person who actually reminded us of the constant bubble was Mr. Ma Jun, a PBOC adviser. To be more specific, Ma Jun was one of the PBOC Monetary Policy Committee. Mr. Ma Jun said that the major stock index in China had risen nearly 30%, while the real estate prices in the Big Four cities also risen sharply.
He also mentioned that this was a rather weird phenomenon in such a struggling economic situation, which must not be unrelated to monetary policy. What’s more interesting was he also mentioned that monetary policy shifting cannot be in a hurry, as the price index did not rise too much in 2020, making the central bank unnecessary to do a U Turn.
However, regardless of what he said, China’s o/n repo has been on the rise for a consecutive week, and surged to 3.3278% on Friday midday, its highest since March 2015, while official data showed that some overnight funds settled at a cost of 10%, according to Reuters. The SSE Composite Index fell from 3637.1 to 3483.07, or -3.43% last week. Players in the market were rather pessimistic.
However, there is one market where all the investors, or to be more specific, players were speculating how much more price rising would be, the real estate market. This contradicting picture tells more about the China economy.
With a rather amazing number of 6.5%, China’s GDP growth in 2020 Q4 is pretty much impressive, cheered by lots of economists both in and out China. However, some guys with deeper understanding of Chinese Economy, like Michael Pettis, pointed out that the 6.5% was more worrying than cheering. Beijing, since many years ago, was trying to re-balance the growing economy with more consumption instead of net export, investment, or government consumption. But the 6.5% growth coming with only 4.6% in retail sales, an approximation for consumption, and even this number was with tailwind, according to Michael Pettis.
The challenge to Beijing, as always, was to perform a tightrope walking, keeping the growth higher enough to meet some political propaganda as well as job creation goals, while deleveraging to maintain a healthier economy system. Though, as always, Beijing kept failing to achieve the latter one.