Huatai Securities: Debt cow foundation has not shaken the market yet in time

Huatai Securities: Debt cow foundation has not shaken the market yet in time

Source: Core Views of the Strong Bond Huatai Forum We try to filter out signals from many noises so as to grasp the main contradictions and core themes of the bond market in 2019.

The difficulty in 2019 is that the selective characteristics of policy cameras are more obvious under the complex environment. This brings difficulties to our logical deduction, but there are still many investment themes that can be tapped.

We have sorted out the eleven major topics that the bond market needs to pay attention to in 2019 for investors’ reference.

It should be pointed out that forecasting is cheap. It is the real challenge to make a high investment portfolio based on major contradictions and maintain sensitivity to adjust according to forecast changes in a timely manner.

  Macro-theme: The world is becoming weaker from differentiation to convergence, and the downward pressure on China ‘s inertia is still large. The global economy predicts that the restructuring and differentiation will tend to be weak, but the US ‘s head advantage remains.

China’s economic inertia is declining, and policy cameras are the first choice. It is expected that the game space will be limited.

The enlightenment of investment lies in whether the weakening global economy will instead bring about a turnaround in trade?

The global economic convergence is weak, the US dollar is weak, and there is a slight rebound opportunity for gold and other safe-haven assets. The constraints of China ‘s monetary policy have not been completely lifted, but have eased slightly.

Downward pressure on the domestic economy has emerged. The first quarter may be the point of greatest pressure. Monetary policy is easy to loose and tight, wide credit performance is not obvious, the foundation of the debt cow has not wavered, and the market has not finished in time.

For equity markets, the space for budget games is relatively limited, and structural opportunities deserve more attention.

  Policy topics: policy-oriented camera choices, currency, fiscal counter-cyclical adjustments, fine-tuning of regulatory policies, dredging monetary policy mechanisms, and repairing financing channels are the focus of wide credit in 2019.

Regulatory policies such as non-standard and deposits need to be adjusted urgently.

Under the requirements of “countercyclical adjustment”, monetary policy will be maintained in a series of reasonable and sufficient liquidity, but the focus will shift to stable growth and evacuation liquidity mechanisms.

There is still room for overall monetary policy. In 2019, we will continue to implement RRR cuts and targeted RRR cuts. The use of structural monetary policy tools such as TMLF, PSL, and refinancing will be replaced more often, in order to clear the substitution of currency to credit.

The growth rate of M2 is expected to gradually improve the stability of the company, and the social finance hovered at a low level in the first quarter and then rebounded steadily.

The overall monetary policy is neutral and loose, the bond market is still in a safer area, and interest spreads and arbitrage opportunities are still recommended.

  Institutional theme: The financial ecological chain continues to reshape, wealth management “asset shortage” continues, and the supply of local debt will increase. Wealth management subsidiaries will officially land in 2019 to further reshape the financial ecosystem.Affecting the direct impact, it is still unknown whether the nature and behavior model of bank financial management can be completely rewritten.

Interest rate debt is heavy, but it is not an asset preferred by the bank’s financial management. Non-standard financing still has potential uncertainties. The small “asset shortage” of bank financial management may continue.

The large amount of local debt supply has an expansion effect on the national debt allocation on the table and requires the coordination of monetary policy, which in turn increases the certainty of short-term and interest rate opportunities.

Although interest rate debt is still inertia, the allocation value has substantially weakened and it is difficult to cover the cost of the debt end. It is even more important to tap coupon and interest rate opportunities in credit bonds.

  Market theme: Broad-spectrum interest rates from differentiation to convergence, credit risk from liquidity shocks to income statement shocks. Under the influence of multiple factors including policy guidance, financing shrinkage, and monetary policy substitution, broad-spectrum interest rates have returned to divergence to convergence.

We believe that the overall decline in broad-spectrum interest rates will bring about a major turnaround in the equity market.

Credit risk may cancel the passive contraction of financing channels in 2018 and transform it into the income statement shock caused by the economic downturn in 2019.

Cherish high-quality assets such as non-standard property and real estate, and private enterprises and real estate property companies are still benefiting from policy support and improved financing channels.

  Other topics: Large-cap swaps are expected to converge Overall large-cap swaps are expensive, small-cap swaps are estimated to be cheaper due to investor structure and credit, and the risk of small-cap stocks is reduced.

We still adhere to the core point of view: “the convertible bond market has strategic value. We must select individual securities in the medium and long term and actively deploy them, but we need to control positions and collect chips patiently in the short term.”

We recommend adopting the strategy of “low-absorption + mine clearance”. Large-cap stocks give preference to underlying stocks, and small- and medium-cap stocks underestimate the variety of bond yields and actively use them to combat the uncertainty of the stock market and stocks, excluding those with credit risk.

  Risk warnings: The global economy is down more than expected; trade frictions are unexpectedly escalated; the broad credit policy is more than expected; the equity market is warming.

  The top ten investment themes for the bond market in 2019.Many investors, including us, are faced with this confusion: falling into information inflation, replacing incompleteness of information.

How to filter out signals from many noises and try to grasp the main contradictions and themes of the bond market in 2019 is the main goal of our report.

  In 2016, if you can understand the deep meaning of supply-side structural reform in a timely manner, and have a deep understanding of financial risk prevention and deleveraging in 2017-2018, investment will be half successful.

According to the short duration in the first half of 2018, the broad-spectrum interest rate differentiation, and the divergence between interest rate debt and credit spreads are all deducible results under the main contradiction of financial risk prevention.

The difficulty in 2019 is that the internal and external environments are becoming more complex and the selective features of policy cameras are more obvious. This brings us difficulties in deriving, but there are few investment themes that can be tapped.

  It should be pointed out that forecasting is cheap. According to the main contradictions and obtaining a high investment portfolio, keeping the sensitivity revised in time, these are the real challenges.

  Theme 1: The global economy is weakening from differentiation to convergence, but the United States still has a head advantage: ★★★ ☆☆ Important significance: ★★★ ☆☆ The global economy or resonance and resonance recovery in 2019-differentiation tends to converge, partialweak.

The probability of US economic growth begins to fluctuate (2018.2).

The 8-3% GDP growth rate is the top of the current round of economic growth in the United States.

The European economy is expected to flatten or fall slightly, and the economic trends of emerging markets, driven by China, will also weaken.It can be expected that 2019 may become a year in which the global economy as a whole is weakening, and the US economy is a stand-alone benchmark for 2018 (global divergence and differentiation).).

  In the end, the economic growth of the United States tended to be conservative, but the uncertainty facing Europe was more serious.

Although the highest point of US economic growth has passed, judging by the incremental gap, the US economy will still be in an expansion period in 2019, that is, the possibility of economic growth and capacity expansion and contraction is unlikely. It is expected that the US GDP growth center will be at 2.

Around 5%, about 2% in 2020.

Earlier in the election year, the demand for economic growth was even more serious, but the relative importance of the two sessions was a prominent issue.

Trade frictions have adversely affected global economic growth, resulting in the United States being likely to be a relatively beneficial party.

Below the rankings, there is more uncertainty in Europe.

In 2019, the European economy is still facing three major breakthroughs: insufficient domestic demand is more obvious, global trade frictions continue to rise, and the role of exports in exchange rate changes has become apparent.

At the same time, the political risks in Europe remain. Italy, Germany, and the United Kingdom are Europe’s “three gunpowder barrels.”

Although the political contradictions in Europe have been eased to some extent in 2019, they are still repetitive and potential risks, which will cause a drag on the European economy and constrain Europe’s gradual monetary policy path.

  In emerging markets, the downward pressure of the Chinese economy has expanded the external trading environment and expanded due to the contraction of its own credit conditions. Whether China’s economy can stop falling and stabilize is also affected by more policy factors, but the economic growth rate has gradually become a market consistencyexpected.

In addition, if the strong US dollar continues, the entire emerging market economy may be impacted, with the dual pressure of exchange rates and capital outflows.

  In summary, we believe that from the perspective of convergence, the global economy is likely to have a consistent downlink (although some variances are still large), but the comparative advantage of the United States still exists, and the stability of the United States economy is slightly stronger, and it has not been obviousThe risk exposure has been exposed, and the complete switch between the US and European levels of strength has not yet arrived. The US’s head advantage may still exist.

  Investment Implications: 1. In the context of a weakening economy, the strength of trade wars between countries is insufficient, but it may promote the alleviation of trade frictions, and fundamental contradictions and concerns may be shifted; 2. If the US economy and the European economy are shifting;The narrowing of the difference is smaller than the market expectation, so the US dollar index in 2019 may not shift from a high of around 97 to 91 as expected by Bloomberg, but may show a layout of high fluctuations around 94-95The opportunities for small-scale rebounds in safe-haven assets such as gold have not been completely lifted, but have eased slightly; 3, gradually, due to the lessons learned from Turkey and Argentina in 2018, the risks facing emerging markets are still for.

  Theme 2: China ‘s economic growth is declining inertia, reasonable choice of policy cameras, and limited probability of various game spaces: ★★★★ ☆ Important significance: ★★★★ ☆ The economy has produced a super strong under pessimistic expectations in 2016Instead.

At the beginning of 2016, the market was generally worried that after the stock disaster, the financial growth will weaken the growth of GDP, and there were no bright spots in real estate, infrastructure, automobiles, and net exports.

In reality, however, the local government has found three major financing channels: industrial funds, government purchases, and PPPs, which have clearly swayed infrastructure investment.

In addition, due to the “asset shortage” in the bond market, yields have continued to decline, and corporate financing channels have been smooth, which has also played an important role in supporting the economy.

At the same time, the monetization of the shed reform has clearly plowed the development of real estate demand in the third and fourth tiers and the development of related industrial chains.

Obviously, in essence, there is a shadow of countercyclical adjustment behind the superpower of this round of economy.

  In 2017, the global economic small resonance gave power to stage a debt bear without physical pain.

The economy again exceeded expectations in 2017, and the economic downturn logic deduced by bond market investors has not been verified.

Tight currency in that year severely plunged the financial industry chain, which hit the industry’s idling the most. It did not directly impact the demand for physical financing. It showed that the growth rate of social financing was still fast.

In terms of policy orientation, “tight currency, strict supervision, wide credit, and heavy industry”, from the perspective 南京夜网 of credit and non-standard data, financing channels are still smooth, and the real economy does not have much direct impact. We have no physical pain debt bears.
Of course, another core factor is that the global resonance pulling external demand has strongly underpinned China’s economic system.

In addition, real estate investment surpassed expectations, supply-side reforms led to the clearance of industries with excess capacity, etc., all resulting in economic growth exceeding expectations.

  The logic of late arrival in 2018 has shown downward pressure on the economy.

Beginning in 2018, non-standard financing channels such as loan entrustment, non-standard, and interbank investment have encountered multiple restrictions. New policies such as asset management regulations and local government debt cleanup have been implemented, resulting in contraction of financing channels and collapse of credit.Down.

Infrastructure construction bears the brunt of this process, and its duration has the most direct impact on the economy.

However, the tension caused by the Sino-U.S. Trade friction has unexpectedly led to import and export rush, which may also have a positive effect on the economy.

Real estate companies are accelerating their turnover due to capital and cautious expectations, coupled with the contribution of land purchase fees, real estate investment is better than expected.

On the whole, the favorable factors of the economic growth prospects are transient, and the unfavorable factors have not seen a reversal, which will bring a shadow to the economic growth prospects in 2019.

Of course, the market’s pessimistic expectations are ahead of reality.

  The current market consensus on economic growth is shaped by two points: Will the downside exceed expectations and when will it bottom out?

We judge that the overall fiscal situation is still difficult to see improvement in the short term. The deficit rate is difficult to exceed 3%. Tax cuts, increased expenditures, and deficit constraints are intertwined to restrict the pace of fiscal counter-cyclical transformation. Infrastructure is expected to exceed the growth rate of 7-8%.

The real estate policy is the most critical. The change in the introduction of land allocation policies at the end of the first quarter or the second quarter of 2019, but the intensity of trade friction between China and the United States has progressed. It is expected that the growth rate of real estate investment will be reduced by about 5% (a more optimistic estimate).
Manufacturing investment has been stable against the background of increased advanced manufacturing, and net export variables have penetrated.

In terms of inflation, CPI rose slightly, PPI dropped slightly, real GDP bottomed out and rebounded weakly, and nominal GDP fell slowly.

In this way, in 2019, when counter-cyclical adjustments and specific developments are taken into account, the game space on the micrometer scale may be smaller. The first quarter is the time when the pressure is the highest, but the subsequent bottoming rebound is only speed.

Considering the complexity of the economy, especially when residents add leverage to link unemployment with house prices, finance, etc., the probability of the downward trend exceeding expectations may not be ruled out.  Is the fundamental situation worse now than in 2015?

Actually not, but it has yet to be verified!

China actually faced more problems in 2015. Such real estate inventory pressures, excess capacity pressures, and the global economic situation were sluggish. At that time, PPI deflated for several months, industrial added value, economic tail risks and deflationary scale.

After the horizontal reform of supply and monetization of shed reform in 2016, the two major risk points of real estate inventory and excess capacity have been resolved.

However, the increase of residents’ leverage has led to a high level of leverage in the whole society, heavy Sino-US trade frictions, and short-term economic growth.

Therefore, although the economic situation is not worse than that in the beginning of 2015-2016, there are indeed many risk points that need to be prevented.

  Policy is the biggest “fundamental”, and the optional features of the camera in 2019 are obvious.

Under internal and external pressure, the current policy focus is changing, “six stability” is a new job requirement, and the intensity of counter-cyclical adjustment has increased.

We believe that the intertwined characteristics of internal and external factors in 2019 will be difficult to change, and the preferred features of the policy camera will be more obvious. The policy direction will be flexibly responded to actual conditions. The progress of trade friction determines the strength of domestic demand hedging. Tight regulatory policies that do not match the downward trend of the economy may be fine-tuned.And real estate is a core variable that is likely to trigger policy changes in 2019, focusing on poor expectations.

At present, we have not seen the “wide credit” coercive measures. We are concerned about whether the central government will moderately increase leverage and loose real estate policies, and whether local government hidden debts and non-standard determinations will be loosened.

  Investment Implications: From a fundamental perspective, 1. Downward economic pressure is emerging. The first quarter may be the point of greatest pressure. Monetary policy is easy to loose and difficult to tighten, and wide credit has not seen improvement. The foundation of debt bulls has not wavered. The market is in time.In terms of space, we still think it is difficult to lower than 2016, mainly due to the accumulation of the most radical funds (through multi-tiered outsourcing), the deflation volume, etc. have not yet reached the current level, and the overlap of US debt and otherSlightly larger than at the time, and more local debt and other supplies; 3. In terms of credit debt, real estate debt may be the beneficiaries of expected policy relaxation, and the excess capacity and the assessment of some industrial debt and credit risks face downward pressure during the economic downturn.It is still increasing under increasing circumstances; 4. For equity markets, the volume game has relatively limited space, structural opportunities are more worthy of attention, and downward pressure on performance is still worthy of caution. Stock selection from the bottom up is the core.

Policy-sensitive assets are the focus of our recent attention. Sometimes building materials, real estate, 5G, high-speed rail, etc .; 5. Regarding “counter-subsidy” (selling proceeds) products, the market needs to be doubled in the event of market changes and constant fluctuations.Be cautious with certain entitlements and low- and medium-level perpetual debt.

  Theme 3: The probability of broad-spectrum interest rates from differentiation to convergence: ★★★★★ Degree of influence: ★★★ ☆☆☆ The most important investment theme in 2018 is the disruption and passive contraction of financing channels.

We can boil it down to three paths: first, non-standard financing channels are tightly controlled, new asset management regulations, entrusted loans, bank-trust cooperation supervision channels and non-standard financing have shrunk significantly; second, some financing entities have raised financingDemand was suppressed, and local governments and real estate, the two most important financing entities, tightened their financing policies. Third, procyclical behavior of financial institutions strengthened credit contraction.

This round of credit contraction was a passive contraction, which caused a series of changes in the market. The local broad-spectrum refractive index was vertically differentiated, the growth rate of infrastructure investment was significantly lower, and a wave of credit defaults and equity pledge risks appeared.

In the process of shrinking financing channels, the weakening of financing demand has been slower, resulting in an imbalance between supply and demand and rising physical financing costs.

At this time, financial deleveraging is effective, downward pressure on the economy is increasing, monetary policy is relaxed, inter-bank fund interest rates are lower, and it is in sharp contrast to physical financing costs.

  Among them, broad-spectrum interest rate gradient differentiation.

The deleveraging policy in 2018 has begun to extend to the real economy, which has brought about breakthroughs in financing channels and financing entities, triggering economic growth expectations.

The deleveraging effect of supplementary finance has emerged, so monetary policy is gradually relaxed. With monetary policy and inter-bank liquidity, the closer the interbank business rate is, the more obvious the downward interest rate will be.

However, due to the shrinkage of financing channels significantly faster than the shrinking of financing demand, financing-related credit and non-standard interest rates have risen, leading to broad-spectrum interest rates, interest rate debt and credit spreads, and the gap between certificates of deposit and deposit rates diverge.

  This prospect of differentiation has converged in 2019.

The Central Economic Work Conference raised the issue of “difficult financing is difficult” and repeatedly proposed “advancing the two tracks of interest rates into one track”. The policy orientation promoted the emergence of this convergence.

In addition, inter-bank liquidity easing is being converted to broad-spectrum interest rates.

At present, with the rapid decline of ultra-short-term interest rates, the cargo-based yield has fully entered below 3%, and the difference between the interest rate and the deposit interest rate has narrowed, which is conducive to alleviating the pressure on commercial banks ‘general deposits and reducing the cost of commercial banks’ liabilities.

There is a comparison effect between the cargo base and structured deposits, and it will also push down the interest rate on structured deposits.

And a few are usually the benchmark for financial management interest rates, coupled with the downward decline in interest rates on the asset end of financial management, financial management rates are also in a slow downward process.

In addition, the financial data of the past two months reflects the active decline in spending on physical financing, especially the real estate-related chain.

If financing demand continues to shrink, the supply and demand situation of physical funds changes, and broad-spectrum interest rate reset differentiation begins to enter a convergence stage.

In the end, financing channels such as urban investment and real estate may be liberalized, leading to a decline in financing rates.

Among them, credit and other interest rates will decline at the peak, and the risk-free interest rate will decline because of the decline first, at this time, the decline will be relatively small, which will manifest itself as a narrowing of broad-spectrum interest rates.

  Investment Implications: 1. We believe that only a broad-spectrum interest rate decline will bring about a major turnaround in the equity market. The decline in wealth management rates indicates a reduction in the opportunity cost of investing in the stock market. The decline in credit and non-standard interest rates indicates that corporate financing difficulties have improved.The risk is reduced and the pressure on financial costs is reduced. 2. Cherish the titled real estate non-standard and other high-quality assets. One of the important reasons for the high non-standard financing costs is the passive contraction of financing channels, which has certain “policy dividends” for investors.

  Theme 4: Probability of game bond strength switching: ★★★ ☆☆ Important significance: ★★★★★ The degree of bond strength is weaker than expected in 2018.

The “jedi rebirth” of the bond market in 2018 staged a short and long bull market rotation from estimation to policy relaxation to economic downturn.

While A shares are almost unilaterally down, estimates, performance, and risks are estimated to kill three.

There are two core variables behind strong and weak performance: financial risk prevention (inside) and Sino-US trade friction (outside). The former can be predicted and deduced, and the rest are difficult to measure.

However, in history, there have been many rare cases of a two-year bull market in the bond market. Investors need to prepare for the switching of large and small assets in 2019.

  The relative price-performance ratio between stock and debt is undergoing subtle changes.

Interest rate debt yields are already below the historical center, while stock market valuations are already at historically low levels.

The cost of high-grade credit bonds relative to blue-chip stocks is decreasing, and the medium-term cost-effectiveness of blue-chip varieties has not lost to high-grade credit bonds.Obviously, the relative cost-effectiveness policy of stocks and bonds has changed, which is the foreshadowing of future strength and weakness switching.

  But the strength of stock bonds has switched to other fundamentals, liquidity and other aspects.

Although the stock market has ushered in a policy bottom and an estimated bottom is not too far away, the bottom of the performance is not clear, and it takes time to wait for the quantity to change.

In addition to the bull market that is expected to be promoted by the 2015 reforms, economic fundamentals have improved, and the improvement in profit expectations of listed companies is also a necessary condition for a stronger stock market.

In addition, although there may be a net shift in liquidity coefficient, if the broad-spectrum interest rate cannot go down and the physical financing cost remains high, and the wealth management interest rate still brings benefits and opportunity costs to the stock market, the severity of the stock market bullishness remains.Larger.

  Trends and inertia are still on the side of the bond market, but time has begun to be friends in the equity market.

At present, the downward pressure on the economy is still heavy, policy forecasts are counter-cyclical management, and financing channels and financing expectations have declined, leading to a certain “asset shortage” in financial management, and the foundation of debt cattle has not wavered.

However, the return imagination of the bond market is significantly reduced, and the debt-side costs of financial institutions and other institutions have fallen slowly, forcing investors to seek returns from risks.

Therefore, things must be reversed, the market has begun to reflect multiple pessimistic expectations, and time begins to cost friends in the equity market.

  What signals can you focus on to increase your “bet”?

We still believe that it is necessary to see that the interest rates on loans and wealth management continue to decrease, thereby reducing the liquidity and distribution pledge risks of listed companies and reducing the opportunity cost of entering the city.

The downside pressure on the economy may be in the first quarter, and the annual report data is likely to be unsatisfactory, and the pressure on performance expectations may improve in the future.

In January, the trading window of the stock market decreased, and we continued to focus on low-sucking opportunities and evade small-market poor performers.

In February, attention was paid to the return of funds after the Spring Festival and the game of Sino-US trade frictions. MSCI raised China’s weight. The opportunities brought by the warmth of the policies of the two sessions.

After the time of the annual report, market performance pressure may be further improved and eased.

  Of course, expectations are too high to be disappointed, and the characteristics of structural market and individual stock market may be more obvious.

We believe that the position in 2019 is no longer important. The bottom of the policy has seen that relative to the improvement in the price-performance ratio of the bond market, the probability of the stock market’s growth space is higher than the reduction space.

However, the overall size of the game space is limited, and positions may not be the decisive force for determining the outcome of the game. The stock market has not yet seen the basis of a big bull market; individual stocks are the most important.In the industry, from a policy-oriented perspective, infrastructure support, real estate policy, strict fine-tuning are high-probability events.The short-term infrastructure, high-speed rail, 5G and other equivalent concerns, non-bank is better than the bank’s judgment does not change; the style of the small and large plates should be more balanced.

  Investment Implications: Paying close attention to the switch between stock and debt may be an important theme in 2019, and asset allocation needs to be slowly balanced.

There will still be a significant seesaw effect between stocks and bonds.

However, it seems that the operation of the equity market in 2019 is also not difficult, and it takes time for trendy opportunities. Grasping phased and structural opportunities is still the mainstream.

It may be more appropriate to play games with budgetary products such as “advance, attack, retreat and defend”.

  Theme 5: Policy-oriented camera decision-making. From long to iterative transition, the probability of trend convergence appears: ★★★ ☆☆ Important significance: ★★★ ☆☆ Looking at the post-2018 military, long change is the most important investment themeThe long-term performance of the VIX index is the best, and the economic downturn is expected to be poor. The expected factor has become the most important factor in magnifying changes.

In this background, budget products such as convertible bonds may not perform well, but the product characteristics can be restored to the fullest extent, and the performance is significantly better than that of the underlying stock.

Obviously, long fluctuations need to be combined with direction judgment to have practical significance. For a long time in the country, risk-free assets have become winners.

  There are still many risk points such as fundamentals and trade frictions in 2019, and policy orientation will be more easily replaced by cameras.

However, the Politburo meetings and the Central Economic Work Conference have repeatedly mentioned “six stability”, and the demand for stability has continued unabated.

While most budgets are expected to be sufficient, it takes time to reverse fundamentals, and it takes time to raise risk expectations.

Under this combination, all types of assets may show a transition and weak trend, and refuse to continue linear extrapolation in extreme situations.

  In addition, policies such as supervision are expected to be fine-tuned based on macro indicators, continue to focus on structural and reverse operating opportunities, and ambush policy-sensitive assets.

Many policies such as financial risk prevention and deleveraging were introduced at the economically qualified stage, and they are bound to be fine-tuned during the economic downturn.

The guiding ideology of “advancing in stability” also determines that policy orientation will not advance in the event of conflicting variables.

Correspondingly, the search for policy-sensitive opportunities in terms of relief of private enterprises, relaxation of financing such as real estate, and non-standard “redefinition” may still be important investment topics in 2019.

In the bond market, focus on real estate, private enterprise leading debt value repair opportunities.

In the stock market, high-speed rail, 5G, etc., as well as building materials, real estate, etc. have opportunities for policy games.

  Investment Implications: If the volatility of various types of assets increases but the trend is weak, it is difficult to obtain returns from sudden changes or splits, but the bond market coupon and interest spread opportunities are still worth making up.

In the context of limited overall budget game space, the above structural opportunities in the stock and bond markets are worthy of attention, and the focus is not on positions or even individual stocks.

In addition to policy-sensitive assets, high-dividend stocks will receive more and more attention as they grow in absolute interest investors.

  Theme 6: Promote credit widening, and fine-tune the probability of regulatory policies: ★★★ ☆☆ Important significance: ★★★★★ In 2018, deleveraging extended from the financial market to the real economy, and the sharp contraction of financing channels caused by tight financial supervision triggered entitiesThe break of the corporate capital chain, the slenderness caused a wave of credit defaults, and equity equities risk.

In the second half of 2018, monetary policy shifted to neutral and loose, credit became the focus of the policy, new rules for asset management were loosened, local special debt was issued quickly, and private enterprise relief policies were continuously introduced, but social financing, M2 and other growth rates continued to decline.How to clear the currency policy and mechanism and repair financing channels has become the focus of wide credit.

  Among the several areas of wide credit, the problem of financial system and financing subject restraint is the most prominent.

We divide wide credit into four periods: monetary policy, financial system, financing subject and project capital.

Monetary policy has become loose, and the biggest sticking point still lies in the financial system and financing subjects.

Among them, the off-balance sheet needs to face up to the realistic significance of shadow banking and non-standard, and the on-balance sheet needs to establish incentive and exemption mechanisms, while reducing restrictions on various industries and regional credit placement, and reducing bank debt costs.

For financial entities, local governments and urban investment and financing are subject to the constraints of hidden debt control and liquidation, while real estate financing is still under high pressure, and it is urgent to fine-tune according to the economic downturn.

  Among them, non-standard financing and other policies may have marginal adjustments.

Channel business restrictions under the new asset management regulations, and the rapid shrinking of non-standards is one of the important reasons for the shrinking of financing channels. On-balance sheet credit and bonds are regulated financing channels encouraged by the regulatory authorities.It is difficult for enterprises and financing platforms to obtain on-balance-sheet credit support, and the information on bond financing is also high.

Therefore, non-standard is still an indispensable financing channel for the real economy.

President Yi Gang recently pointed out that shadow banking is a necessary supplement to financial markets in developing countries, but to regulate operations may mean that there may be marginal adjustments to non-standard financing policies in 2019, and this may also be a repair channel for physical financing.The key to credit.

  It is far from enough to reduce the cost of bank debts through the reduction of standards, and regulatory policies such as deposits have also become constraints to monetary policy intervention, and they need to be adjusted urgently.

The Central Economic Work Conference raised the issue of “financing is difficult to finance,” and called for “improving the monetary policy intervention mechanism.”

Among them, in 2018, the inter-bank funding, interbank deposit and loan interest rates, and financial management interest rates diverged. One of the crux behind this is the shortage of bank deposits. This is both a problem and the excessive weight given to general deposits by regulatory indicators.

If we can cool down the deposit shortage, it will help reduce the cost of bank debt, thereby driving down the interest rate on loans, and also improve the efficiency of monetary policy.

The national deposit supervision policy is stricter than Basel III, and it is not completely compatible with the current economic downturn.

We believe that appropriately relaxing deposit requirements in liquidity indicators and continuing to weaken monitoring indicators such as the loan-to-deposit ratio may be an important part of improving the monetary policy intervention mechanism.

  Financing channels need to be opened, and corporate bonds and bills are encouraged.

At the same time as financing channels shrink, it is necessary to broaden other financing channels for the entity, especially for small and micro enterprises and private enterprises.

CRMW, private enterprise bailout fund, Caijingfa Reform[2018]No. 1806, etc., have all been implemented to gradually mitigate the liquidity risk of the entity, and the ultimate realization of wide credit depends on the increasingly clearing of physical financing channels and the repair of physical financing needs.
The financing supervision policy in 2019 is expected to be further marginally adjusted. The review standards for corporate bonds and corporate bonds may be slightly relaxed. The standardized operation and expansion of the bill market is conducive to transfusion of blood for private enterprises.direction.

  The marginal adjustment of regulatory policies has stimulated the vitality of micro-subjects.

Stimulating the vitality of micro-subjects is indeed a topic of level. The scale of enterprises needs to be competitively neutral, both the central and local enthusiasm need to be mobilized, and the financial system’s incentive and exemption mechanism needs to be rebuilt.

Among them, the misalignment of the regulatory constraints and incentive mechanism of the micro-subjects of financial institutions is also one of the important reasons for poor credit deficiencies.

In the past two years, under the guidance of a series of strong regulatory policies such as “three, thirty and forty”, the disorder in the banking industry has been prevented to a certain extent. In 2018, the financial regulatory policy has extended the transition period and cut off the old and new.Both have given a certain degree of relaxation, but the regulatory constraints and misalignment of incentive mechanisms faced by financial institutions still need to be further alleviated.

In December 2018, the Central Economic Work Conference proposed that “focus on stimulating the vitality of micro-subjects”. For real enterprises, they may see tax and fee reductions and competition-neutral alternatives introduced.

For financial institutions, the direction of supervision policies in 2019, the reconstruction of incentive mechanisms also depends on assessment indicators and marginal adjustment of supervision policies.

  Investment inspiration: For the bond market, the best scenario is “wide credit is powerless.”

At present, there has been an active shrinking budget for financing needs, merger financing channels are not smooth, and financing constraints. It is easy to form a “liquidity trap” by relying solely on monetary policy to fight alone (of course, it is beneficial to the bond market).

Whether the regulatory policy can be fine-tuned to stimulate the vitality of micro-entities, reduce the shrinkage of financing channels, and stimulate the micro-entities of financial institutions is the key to leniency in 2019.

However, the impact of this change on the bond market may be biased, alleviating the “asset shortage” and helping economic growth. Investors in the bond market need to remain sensitive to adjustments in regulatory policies, which may be an important trigger for the transformation.

  Theme 7: The financial ecological chain continues to reshape the probability of occurrence: ★★★★ ☆ Important significance: ★★★ ☆☆☆ 2018 is a year when the regulatory policy has been implemented, new regulations on loan lending, large-scale risk exposure, Circular 302, New regulations on asset management, new regulations on financial management, and management methods of financial subsidiaries have been implemented, and major changes have taken place in the financial industry: the scale of financial management has stagnated, the asset management landscape of securities firms has ceased, and the business of fund subsidiaries and special accounts has continued to shrink.difficult.
Correspondingly, structural deposits have a different status, monetary funds continue to expand, bond index funds, and ETFs have become new hot spots in the market.

  The compression of old wealth management products of banks will continue, but the pace is unpredictable.

According to the requirements of the new rules for asset management, old products need to be fully transformed by the end of 2020. In 2019, it is expected that multiple banks’ financial management will still give a pressure drop of 20%, and the challenge will be in 2020. Of course, it does not rule out that regulators shouldTake steps to change the possibility of buffering.

The development of cargo bases, fixed-opening, and closed-end products are still relatively consistent demands of various financial managers, and they have also begun to develop financial index products.

  Wealth management subsidiaries continue to reshape the financial ecological chain.

At the end of 2018, the China Banking and Insurance Regulatory Commission officially approved the application of China Construction Bank and Bank of China wealth management subsidiaries, indicating that the landing of wealth management subsidiaries will enter an accelerated stage. It is expected that the wealth management subsidiaries will officially launch in the second half of 2019.

Wealth management subsidiaries can be called “multi-functional licenses”, meanwhile, they have both asset management and trust functions. In terms of investment scope, they will continue to change the financial ecological chain.

The high cost and high-gate biology of wealth management subsidiaries may cause some small and medium banks to exit the wealth management market and return to the deposit and loan business.

The relationship between wealth management subsidiaries and public offering funds has begun to change from cooperation to competition. The advantages of the subsidiary in the field of fixed income will directly impact the fixed income business of public offering funds, and a new cooperation model between the two needs to be re-established.The most impacted is likely to be the cargo base. After all, the bank’s traditional advantage is liquidity management, coupled with its channel advantages, duration, and investment constraints, such as binding advantages, will definitely gain more competitive advantages.

The inter-bank competition between wealth management subsidiaries and brokerage asset management and trust companies is greater than cooperation. The business of brokerage asset management and trust companies may be compressed. How to differentiate their own advantages and find ways to differentiate competition become the transformation of brokerage asset management and trust companiesdirection.
Of course, it is unknown whether the nature and behavior model of bank financing can be completely rewritten.

  The momentum of cargo-based expansion is panic. It is necessary to introduce unified and standardized regulatory documents, and short-term and medium-term debt funds will continue to expand.

In 2018, the monetary fund’s yield continued to decline while the scale of expansion continued to weaken, and the allocation value weakened. With the new cargo-based regulations, large-scale risk exposure, and new liquidity regulations, and customized cargo-based substitution, the cargo-based foundation will bid farewell to its rapid growth in 2019.Expansion period.

In particular, after the establishment of a wealth management subsidiary, it may also exert its efforts on cargo-based products to diversify the scale of cargo-based products.

In the process, a new unfair competition environment emerged, which needed to be unified, and standardized regulatory documents were launched in the first half of 2019.

The new rules on asset management require breaking new cash, clearing the fund pool, changing the net value of bank wealth management, and in the process of reshaping the consciousness and habits of residents in financial management, the short-term and short-term bond funds generate relatively high yields, which may be relatively largeOr will replace the cargo base as the object of sought after funds.

  Passive investments such as bond index funds and ETFs continue to expand in exploration.

In 2018, the market value of bond index funds and bond ETFs was initially recognized. Although there are still many problems, new development opportunities are ushered in.

The issuance of single-rate bond index fund products exceeded US $ 20 billion, becoming the “dark horse” of the bond market in 2018. Major public fund managers have successively issued relevant interest rate bond index products.

Although all the current bond index funds and bond ETF markets are relatively small in scale and the relative length of credit and debt indexed products, the types of products have gradually changed, and the indices compiled by credit bonds, local bonds, and urban investment bonds have also been involved.

In terms of issuing entities, in addition to public funds, some commercial banks and securities asset management companies have also begun to try bond indexed products. In 2019, it is expected that more managers will get involved in bond indexed products and break through by creating indexed products.

In terms of investment entities, in addition to bank-owned investment ETFs or index funds that are easy to penetrate and have tax-free advantages, RMB-denominated bonds in 2019 will be divided into global government bond indexes and emerging market local currency government bond indexes, which will also attract overseas investors to increaseDemand for the allocation of bond indexed products and instruments.

  Investment Implications: Changes in investor structure are also often important factors affecting the market. For example, the long-term financial expansion in the past few years has been accompanied by the compression of credit spreads. Last year’s short-term behavior originated from the completion of financial management at the end of 2020.

The biggest concern in 2019 may be whether there will be a change in behavioral preferences after the establishment of the wealth management subsidiary. At present, it will still prefer medium and short-term credit debt products.

There is still a potential scale demand for financial management as a whole, but under the background of unified supervision of the cargo base and pressure drop of old products, the growth rate will still be prominent.

The rhythm of pressure drop of old products is still an important variable facing the market.

  Theme 8: Monetary policy is easy to loose, and there is more than enough. The probability of “ditch” is expensive: ★★★★ ☆ Important significance: ★★★★★ Monetary policy will be maintained for a period of time under the requirement of “countercyclical adjustment”Reasonable and abundant liquidity, the focus shifted to stable growth and evacuation liquidity mechanisms.

Since the second half of 2018, external trade frictions have escalated, a wave of credit defaults have spread, and the downward pressure on the economy has increased significantly. The exchange rate and monetary policy have shifted significantly, from maintaining “reasonable stability” to “reasonable abundance”, and again in July and OctoberImprove the rejection structure of banks and reduce the cost of rejection.

Considering the downward pressure of the macroeconomic inertia, the risks of Sino-US trade friction have not been completely eliminated, and monetary policy should be strengthened in countercyclical adjustments.

While financial deleveraging and risk prevention have achieved staged results, this goal has improved, and the focus of monetary policy has shifted more to stable growth and unblocking liquidity mechanisms.

In December, the Central Economic Work Conference decided that the “stable” monetary policy should be “moderately tight”, similar to the formulation in 2014 and 2015, and significantly looser than in the past two years.

Explicitly “strengthening counter-cyclical adjustments”, monetary policy is easy to loose in this process.

  Monetary policy still needs to take into account multiple objectives, and relying solely on monetary policy to fight alone, it is easy to form a “liquidity trap.”

The actual release of monetary policy will definitely have a positive effect on economic growth. The problem is that the alternation generated by the transformation can be sustained, and the deterioration of the economic structure, the pressure on the RMB exchange rate, and financial leverage are making a comeback.

If there is no further deterioration of the external environment or unemployment rate, extreme conditions such as real estate will not occur, and it will not be easy to “flood”, otherwise, a “liquidity trap” is likely to form.

  There is still room for a general-purpose monetary policy. In 2019, it may continue to implement RRR cuts and targeted RRR cuts, and MLF interest rates may be adjusted.

The reserve ratio that is in line with the conventional standards is still at a relatively high level, and there is still room for the next level of monetary policy in the steady growth demand.

Replacing the MLF will help provide long-term funding to the banking system, reduce the cost of bank debt, reduce MLF collateral, and the like, and provide a positive incentive mechanism.

At the time of the RRR cut, we need to pay attention to factors such as the MLF’s concentrated expiration, tax payment, and cross-season. We believe that the Spring Festival is a sensitive time window, and it will be cashed on Friday as scheduled.

This year is expected to continue to see targeted reductions.

However, under the requirements of “perfect” directional reduction, the beneficiary population of directional reduction is expanding, increasing coverage, reducing the performance of doors that meet the conditions, and improving the effect.

  The space for price-based currency instruments is relatively limited.

The actual deposit interest rate (net of CPI) is already negative, which makes it difficult to reduce the deposit interest rate.

OMO’s operating interest rate is subject to the Fed’s interest rate hikes and exchange rate pressures. At present, there is no room for downward adjustment.

The maximum average interest rate of general loans still rises, indicating that the credit benchmark interest rate has been reset, and the short-term adjustment of loan interest rates has little significance and cannot solve problems such as financing difficulties.

  Tracing down the historical significance of MLF, its interest rates will also decline significantly or implicitly.

We proposed earlier that the historical significance of MLF should be diluted. The expansion of MLF began with financial deleveraging, but financial deleveraging has achieved obvious results. The focus of monetary policy has also shifted to stable growth and evacuation liquidity mechanisms, and continue to be carried out on a large scale.The need for MLF operations has decreased.

On January 4, we successively announced the RRR cut, and proposed that “the medium-term loan facility (MLF), which will end in the first quarter of 2019, will not be renewed”, confirming our view again.In itself, the MLF interest rate affects the increase in long-term interest rates.

In addition, the MLF operating interest rate is higher than other policy rates. The MLF interest rate may have become a punitive interest rate, which has also formed a decline in long-term interest rates, which is also not conducive to reducing the cost of bank funds and reducing corporate financing costs.

Therefore, the probability of adjusting the MLF interest rate in a timely manner is greater than the probability variable of the benchmark interest rate.

Of course, we suggest that replacing MLF with TMLF, PSL, refinancing, etc. will also distort the effect of disguised “interest rate reduction”.

  The use of structural tools is more thorough, and it helps to reset the currency to credit.

Replacing MLF with a directional reduction only has the disadvantages of displacement shrinkage tables. Structural tools such as TMLF, reloan, and PSL have more advantages than MLF.

First of all, the reduction in the consumption of structural tools such as TMLF and PSL can reduce the debt cost of commercial banks and indirectly reduce the effect of “rate reduction.” Second, TMLF, PSL and reloans have a directional, accurate drip irrigation effect, which is conducive to gradually expandingFunding really supports the key areas of the economy and weak disruptions; again, these tools are classified and downgraded with the function of expanding tables.

It is expected that in 2019, the use of structural monetary policy tools such as TMLF, PSL, and refinancing will be further expanded to facilitate the realization of currency to credit, reduce the difficulty and expensive financing of the real economy.

Of course, the previous PSL and refinancing were mainly in the name of shed reform monetization and inclusive finance. Whether it will be more supported by private enterprises in the future is worth observing. The specific operation mode of TMLF and the expectations of commercial banks are also worthy of emphasis.attention.
  M2 foreshadows stabilization, the social finance lingers at a low level in the first quarter, and then rebounds weakly.

Affected by financial deleveraging in the past two years, the derivation of inter-bank deposits has decreased significantly, and the derivation of credit expansion deposits has also decreased significantly.

Monetary policy cuts in four directions in 2018 are conducive to raising the currency multiplier.

Peer deleveraging has achieved obvious results, and the impact on deposit-derived interest rates has weakened. The growth rate of M2 growth in the second half of 2018 has declined.

In 2019, the remaining space for monetary policy reductions, TMLF, PSL, refinancing and other structural monetary policies will increase the supply of base money. It is expected that the growth rate of M2 will stabilize.

Although there is an indicator of weakening credit demand, taking into account the increase in local debt issuance in advance, coupled with non-standard, real estate policies may be loose, and the direct financing expansion caused by the bull market in the bond market, the growth rate of social financing may bottom out in the first quarter andHovering at the bottom before expecting a weak rebound.

  Investment Implications: The overall short-term monetary policy is neutral and loose. The bond market is still in a safer area. Interest spreads and arbitrage opportunities are still recommended.

But one of the structural policies that is effective may be “flooding”, otherwise there will be no incentive effect.

Pay attention to the progress of the Fed’s interest rate hikes and downward economic pressure to open up further room for monetary policy.

After the second quarter, the rise of social financing and other factors may cause investors to reduce their interests. Of course, this determines the speed of adjustment of non-standard and real estate policies.

  Theme Nine: Continuation of small-scale “asset scarcity” of financial management, the probability of heavy local special debt supply: ★★★★★ Significance: ★★★★ ☆ Finance management will still face a shortage of small assets.

We observed earlier that the bond market was facing a small “asset shortage”. In 2018, under the impact of the new asset management regulations, the scale of financial management continued to expand and shrink as planned. Coupled with the expansion of the debt-based scale, the bond market demand population did not decline.

At the same time, the financing channels of some financing entities have been broken, local governments, and real estate have been subject to hidden debt clean-up and severe crackdowns, and some financing needs have turned to the on-balance sheet. Off-balance-sheet financial assets have weakened their ability to create and a small asset shortage has emerged.

The hidden debt of local governments will still be transferred in 2019. Interest rate debt is not an asset preferred by banks for financial management. Non-standard financing still has controversial uncertainties (close attention to non-standard policies), and the small “asset shortage” of bank financing may continue.

  In a highly leveraged macro environment, “shortage assets”, especially debt assets, are unbelievable.

In fact, the reason behind this is that the suppression of financing entities and the passive contraction of financing channels have turned into a shortage of wealth management assets, falling into financing difficulties and a wave of defaults.

It is not difficult to understand the change of this thinking. The most important thing to follow in the future is two factors: 1. Non-standard policy adjustments to ease the “asset shortage” in the bond market. There are certain possibilities; 2. Financing entities, local governments and other financingWhether the enthusiasm can be restored, will the real estate policy be relaxed under the framework of one city and one policy, and plans to relax gradually.

Of course, the scale of financial management is definitely shrinking or expanding.

  In contrast, the supply of local debt has been increasing.

We expect the issuance scale of local bonds in 2019 to be 5.

4 trillion yuan, net financing4.

Around 1 trillion yuan, supply pressure has increased.

However, the special debt deficit in 2018 exceeded the expected limit and the issue volume in 2019 is controversial and uncertain. Therefore, the pressure on the local debt supply to the bond market has a certain expected difference.

  Local bond spreads have risen by 40BP, which has led to increased allocation demand and increased trading activity, which has had an expansion effect on government bonds in 2018.

Since the second half of 2018, affected by the Ministry of Finance’s requirement that the issuance rate of local bonds be at least 40BP higher than the interest rate of government bonds of the same maturity, local bonds have become a better “hit new” attraction, and commercial banks ‘enthusiasm for the allocation of local bonds has increased significantly.The period has an expansion effect on the internal allocation of interest rate debt of commercial banks.

For some non-bank institutions, the coupon rate of local bonds is higher than that of national bonds, and the 3-year or 5-year varieties are likely to be leveraged, and the interest margin opportunity is obviously obvious. Therefore, non-bank institutions (especially those with internal tax-exempt advantages)The allocation needs of local bonds have also improved significantly, and the trading activity of local bonds has increased significantly.

As the shortage of small assets in 2019 is still expected to continue, the demand for local debt allocation may further increase, and at the same time, the trading activity of local debt is continuously increasing under the promotion of policies.

  Commercial banks’ on-balance sheet credit expansion preferences are still difficult to pick up.

Due to the narrowing of financing demand and financing channels, the credit expansion of commercial banks will inevitably encounter breakthrough restrictions.

In addition, because the bank is an indicator animal, all business activities are formulated around various indicators, and the current multiple regulatory regulations (liquidity indicators, deposit-loan ratios, etc.) limit the bank’s funding sources, increase costs, and increase liability costs.The pressure in turn is on the expansion of the asset side, so it is expected that the increase in bank credit expansion will still be difficult to pick up, and more funds will still be concentrated on assets such as interest rate debt, local debt, and high-grade credit bonds.

  Investment Implications: Due to the different preferences of the investment crowd, wealth management that prefers credit debt is still expanding, but the supply of interest rate debt is being heavy, resulting in potential mismatches that may result in low and medium-level credit spreads being suppressed.The issuance of interest rate bonds requires the coordination of monetary policy, which in turn must increase the certainty of short-term and interest rate opportunities.

  Theme 10: Credit risk-from liquidity shock to profit and loss impact probability: ★ ★ ★ ★ ☆ Significance: ★ ★ ★ ★ ☆ 2018 is a big year of credit risk, mainly due to liquidity shocks caused by financing breakthroughs.

In 2018, for the first time, 43 entities defaulted on bonds. The initial bond default amounted to 145 billion yuan, a record high.

Looking back at the tide of defaults in 2018, the industry distribution of the defaulting companies is not concentrated, but the company attributes are very consistent. Aside from the companies that have been paid for “technical defaults”, the majority of the defaulting companies are private enterprises.

The reason behind this is not simply a problem in the operation of private enterprises. More importantly, in the context of financial deleveraging and broken financing channels, the refinancing of private enterprises with the worst financing channels has detained more severe challenges.

With the increase in the net financing of state-owned enterprise bonds in 2018, the net financing of private enterprise bonds has increased, and the net financing for many months has been negative; refinancing has broken, the pressure on the termination of overlapping bonds has increased, and it is not surprising that the scale of default of private enterprise bonds has increased significantly.

  Benefiting from policies such as the rescue of private enterprises, the financing of private enterprises has improved, but it is difficult to benefit in general.

In response to the difficulty of financing private enterprises, the central, local, and financial regulatory agencies have issued a series of support policies, such as tens of billions of private enterprise bailout funds, encouraged the issuance of CRMW and other credit mitigation instruments, and proposed the “125” target of bank credit.

However, the main operating bodies of such assistance measures are domestic financial institutions, and there is also a need to prevent risks and protect profits. There are problems in the implementation of policies, such as the scope of benefits, implementation methods, and timeliness of landing. It is difficult to become an overall sample of private enterprises.

From the perspective of financing scale and financing costs, the actual benefits are mainly private enterprises with competitive advantages and strong operating capabilities.

  In terms of credit risk, the new important theme in 2019 is the impact of the economic downturn on corporate profits, cash flow and even net assets.

Affected by the downside of the macro economy, the expansion of trade contraction and other stimulus factors, the operating profit and cash flow quality of some enterprises may be affected by interference, and the ability to continue operating will be weakened; if major changes occur, the contraction of net assets will passively push up the company’s asset-liability ratio.Increase corporate debt burden.

All in all, the economic downturn will affect the long-term and short-term debt repayment ability of enterprises, especially to replace the previous industry.

The historical experience of foreign bond markets also shows that there is a co-existing correlation between the economic downturn and the increase in bond defaults and the rise in credit spreads.

And if the excess capacity industry’s profits decline rapidly, it will also trigger investors’ “out of stock” and other valuation risks.

  Another risk trigger is large-scale bond maturity (including resale).

Existing rights-containing bonds generally enter the exercise repurchase period in 2019, and centralized exercise will greatly increase the pressure on companies to repay their debts.

Among the popular issuers, private companies, real estate and urban investment in 2019 have a lot of pressure on bond maturity. The proportion of bond maturity within one year to the current remaining bond balance is 56, respectively.

5%, 42.

7% and 22.


If renewed issuance of new debt is used as the main source of debt repayment, the issuer will have rolling financing pressure. Once the rolling financing channel is interrupted, the poor turnover may trigger credit risk events.

It is worth noting that some of the entitlements are private placements with little information disclosure. Even if the mandatory re-distribution of investor resale agreements does not necessarily cause widespread impact.

In short, the “comprehensive default cost” of private placement of debt with rights is relatively speaking.

  Investment inspiration: We believe that the overall default situation of credit debt in 2019 is still not optimistic. There are four main inspirations: 1. In the economic downturn, try to avoid overcoming strong or other industries that may be weakened, and prevent rising losses caused by rising industry spreads.Avoiding credit risk in the industry; 2. The pressure of concentrated bond maturity may become an important trigger for credit risk in 2019, to prevent the default risk triggered by sudden interruption of financing channels in rolling financing, and it is particularly worthwhile to be alert to private placement of entitlements; 3. benefit fromPart of the policy tilt is headed by private enterprises, the fact that financing channels are improved, and enterprises have refinancing capabilities, and there are mining opportunities; 4. Although interest rate debt is inherently inertia, the value of allocation is weakened sufficiently, and it is difficult to cover the cost of liabilities.Exploiting coupon and spread opportunities is even more important.

  Theme XI: Estimates of large- and small-cap conversion debt may re-converge. Probability: ★★★★★ Significance: ★★ ☆☆☆ The conversion bond market shows a clear estimation differentiation.

The large-cap varieties generally have high premiums, while the small-cap varieties have low premiums. The gap between the two has been enlarged in 2018.

This situation is relatively rare in mature markets, and rarely occurs in the history of convertible bonds.

The reasons for this have also been analyzed in “Decryption of” Strange Phenomena “in the Convertible Bond Market”: The reason is that the current ratio of small-cap convertible bonds has increased, but the amplitude is relatively lower than before.

In the context of the transient outbreak of default risk in the bond market, these small tickets have encountered liquidity and credit risk discounts because of market doubts. It is estimated that this worry is the most direct manifestation of such concerns; therefore, the marginal return of funds in the current convertible bond marketOutside the insurance and financial management committees, these investor groups have high requirements for the qualification of varieties, and often have restrictions on the entry of private enterprises and low-grade varieties. This is also part of the small-cap conversion debt that cannot be absorbed by incremental funds, forming a gap between supply and demand.

In terms of the above, instead, the large-cap convertible bonds have the full advantages in this aspect, so it is easier for investors to allocate large-cap products such as Dongcai and Everbright, which have high capital and liquidity.

The two reasons mentioned above have led to the phenomenon of the divergence in the size of the convertible bond market in 2018, which is in sharp contrast to the situation in 2014.

  This phenomenon of estimated differentiation may improve significantly in 2019.

We believe that there are two reasons for the convergence of the scaled swap debt estimation.

From the previous analysis, we recognize that the phenomenon of estimated differentiation essentially arises from “imbalance of market structure” and “investor’s choice and replacement”. I am afraid that these two reasons will improve in 2019.

  First of all, due to the intensive conversion of the large-cap market in December 2018, the market will be expected to exceed supply, and the current estimates of the large-cap market may be lowered.

As of today, there are 33 companies that have received approval to issue convertible bonds, with a total scale of 245.1 billion. Four banks accounted for 1.46 billion in convertible bonds. Sinopec, Yangtze Power two EB accounted for 70 billion, the proportion of large-cap productsClose to 90%.

Obviously, with the expansion ratio of the small-cap varieties last year, the issuance of large-cap convertible bonds was stronger in 2018.

At present, the major market varieties are mainly CNPC, Baowu EB, China Everbright, Ning Bank and other bank convertible bonds. In fact, the number of optional varieties is not large.

It can be predicted that if these large-cap convertible bonds are successfully issued in the future, they will greatly increase the choice of investors in convertible bonds, and can effectively reduce the current estimates of large-cap products, thereby eliminating the phenomenon of differentiation.  In fact, investors’ choice preferences and investment behaviors in 2018 may not necessarily adapt to the market in 2019. The styles of the large and small disks in 2019 may not be as obvious and balanced as in 2016-2017.

In the case of the downturn of the stock market in 2018 and the large degree of uncertainty, investors naturally prefer to choose large-cap products with good liquidity and high credit ratings.

Will it continue in 2019?

We don’t think it will.

The stock market has experienced a full release of risks. Both the bottom of the policy and the bottom of the estimate have seen that the downside space is indeed small. The demand for investors to use the large-cap swap for “hedging” has declined. Currently, the main reason for holding large votes is to maintain positions.

In addition, SME stocks have experienced a one-year sell-off, and it is estimated that there are not a few who are at historical lows. It is expected that internal securities will continue to be dominated by shocks in 2019.

Coupled with the themes of “sustainable manufacturing development” and “strong domestic market”, there will be at least one stock opportunity for SMEs in 2019.

Of course, if issues such as equity pledges are alleviated, it will be more effective to promote the repair of small and medium-sized convertible bonds to relatively large-cap varieties.

If the future structural market unfolds, coupled with the large-cap supply of convertible bonds, the institutional adjustment of positions to increase holdings of small and medium-cap products will also help the re-convergence of the convertible bond market valuation.

In general, the estimates of large-cap swaps will be affected by excess supply or will decline, while small-cap swaps may be expected to increase due to style balance and reduced risk, and eventually converge.

  Investment Implications: We still adhere to the core point of view: “the convertible bond market has strategic value, we must select individual securities in the medium and long term, and actively deploy them, but we need to control positions and collect chips patiently in the short term.”

We recommend adopting the strategy of “low absorption + demining”. Large-cap stocks should preferentially choose stocks. Low-estimated stocks in small and medium-cap stocks should actively use the characteristics of convertible bonds to combat the uncertainty of the stock market and stocks.

Of course, varieties with credit risk should still be avoided.

  Risk Tip 1. The global economy is down more than expected.

If the global economic downturn exceeds expectations, the pace of interest rate hikes by the Fed unexpectedly stops, and the dollar will weaken more quickly.

  2. Trade friction escalated.

If the trade friction continues to escalate unexpectedly, it will bring deeper disruption to the global economy and the equity market will face greater challenges.

  3. Overweight credit policy.

The core lies in whether real estate policies, local government’s hidden debt clean-up, and non-standard policies will be adjusted in a timely manner.

  4. The equity market has clearly improved.

Through the diversification of wealth management funds and rising risk expectations, the debt market was under pressure.