QE China Style The intentions and impacts of Chinese monetary policy easing - Macquarie
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
INVESTMENT MANAGEMENT
QE China Style
The intentions and impacts of
Chinese monetary policy easing
SEPTEMBER 2015
A
Convictions that run deep.
Opportunities that matter.
Macquarie Investment Management’s culture attracts
teams globally with specialised asset management
expertise and strong investment convictions that are
dedicated to client performance and opportunity.
Important information
For recipients in Australia: This presentation is issued by Macquarie Investment Management Limited (Australian Business Number 66 002 867 003
Australian Financial Services Licence Number 237 492).
For recipients in Asia: This presentation is issued by Macquarie Funds Management Hong Kong Limited solely for general informational purposes.
For recipients in EMEA: This document has not been prepared in accordance with legal requirements designed to promote the independence of
investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Within the European Economic Area, this document is issued by Macquarie Bank International Limited (MBIL) only to Professional Clients or Eligible
Counterparties defined in the Markets in Financial Instruments Directive 2004/39/EC. MBIL is authorised by the Prudential Regulation Authority and
regulated by the Financial Conduct Authority and the Prudential Regulation Authority. MBIL is incorporated and registered in England and Wales
(Company No. 06309906, Firm Reference No. 471080). The registered office of MBIL is Ropemaker Place, 28 Ropemaker Street, London, EC2Y 9HD.
The information in this document is not, and should not be construed as, an advertisement, an invitation, an offer, a solicitation of an offer or a
recommendation to participate in any investment strategy or take any other action, including to buy or sell any product or security or offer any banking
or financial service or facility by any member of the Macquarie Group. This document has been prepared without taking into account any person’s
objectives, financial situation or needs. Recipients should not construe the contents of this document as financial, investment or other advice. It should
not be relied on in making any investment decision.
Future results are impossible to predict. This presentation contains opinions, conclusions, estimates and other forward-looking statements which are,
by their very nature, subject to various risks and uncertainties. Actual events or results may differ materially, positively or negatively, from those reflected
or contemplated in such forward-looking statements. Past performance information shown herein, is not indicative of future results.
No representation or warranty, express or implied, is made as to the suitability, accuracy, currency or completeness of the information, opinions and
conclusions contained in this presentation. In preparing this presentation, reliance has been placed, without independent verification, on the accuracy
and completeness of all information available from external sources. To the maximum extent permitted by law, no member of the Macquarie Group
nor its directors, employees or agents accept any liability for any loss arising from the use of this presentation, its contents or otherwise arising in
connection with it.
Other than Macquarie Bank Limited (MBL), none of the entities noted in this document are authorised deposit-taking institutions for the purposes of
the Banking Act 1959 (Commonwealth of Australia). The obligations of these entities do not represent deposits or other liabilities of Macquarie Bank
B Limited (MBL). MBL does not guarantee or otherwise provide assurance in respect of the obligations of these entities, unless noted otherwise.Contents
Introduction 2
What’s going on in China? 3
China’s monetary system 4
How different is China’s monetary system? 4
Interest rate liberalisation 4
Unconventional vs conventional monetary tools 5
Central bank bond repurchase is needed to
create the municipal bond market 8
Is this deja vu? 11
Conclusion 12
1Introduction
We believe the Chinese government is undertaking its own version of
Quantitative Easing (QE). We examine how this is happening and the
potential impacts as well as drawing conclusions on the outcomes for the
Chinese Equity markets. We believe QE ‘China Style’ could be one of the
most significant financial market policies that is not fully understood. In our
view the key message is: China’s goal is to stabilize growth in the world’s
second largest economy through monetary policy and it will do this in size
and force.
WE BELIEVE QE
‘CHINA STYLE’ COULD
BE ONE OF THE
MOST SIGNIFICANT
FINANCIAL MARKET
POLICIES …
2What’s going on in China?
Much has been written about the Chinese stock market This action has important impacts for investors both locally
in recent months. However, we suggest investors put the and globally. With significant quantitative easing (QE) this
stock market aside for the moment and focus on the bigger should form the basis of a long-term equity bull market in
picture: the Chinese economy. The key turning point to keep China. As the economy worsens (though we argue a hard
in mind was the third Quarter of 2014. It was at that time that landing is not on the cards) this time around soft economic
the People’s Bank of China (PBoC) third Quarter Monetary conditions will be countered with further (and then again
Statement announced a significant easing of monetary policy further) monetary easing.
while at the same time creating new policy tools. This point
We believe fiscal spending this time will be selective and
in time and these outcomes have in our view been greatly
subservient to QE and investors should forget about another
overlooked by the broader international market and have led
RMB4.0tn open cheque book which was observed in 2008.
many to incorrectly read future signs in the same vein. In our
We don’t make predictions on commodity prices (for example)
view the key message is: China’s goal is to stabilize growth in
but understanding all the ramifications of this QE means
the world’s second largest economy through monetary policy
understanding the effects in nearly all parts of the economy
and it will do this in size and force.
and China’s trading partners’ trades too.
The PBoC is currently overhauling the use of traditional
QE China style began with billions of dollars, has already
policy tools and preparing for significant monetary easing.
moved to trillions of dollars this year. In this paper we look
What began as a policy aimed at bringing down borrowing
at what has happened, why it has happened and suggest
costs for companies and boosting banking sector liquidity
the impacts this may have for investors asking, how much of
has transformed into a longer term strategy of bringing down
the change in Chinese Monetary and Fiscal policy has been
government borrowing costs. We think investors should
understood and appreciated by markets?
consider this a deleveraging program. A significant part of
this is to facilitate the creation of a municipal bond market
for the Ministry of Finance (MOF) to assist in reforming the
fiscal system. This will be the world’s largest ever debt
swap and the market has overlooked the meaning and
significance of this program. More recently, the PBoC has
recapitalised (via a debt for equity swap) its policy banks
such as the Central Development Bank (CDB). Meanwhile,
the National Development Reform Committee (NDRC)
Quantitative Easing (QE) is a monetary
stepped up its effort towards stimulating government- policy tool where a central bank purchases
led investment via support loans from the CDB and government securities (bonds or other
China Agricultural Development Bank (ADB) into targeted securities like asset backed securities
commercial banks, like the China Postal Savings Bank (CPSB).
(ABS)) in order to lower interest rates
These are all targeted liquidity injections using various
government-controlled financial institutions. (typically long duration) and increase the
money supply. QE has often been viewed as
a unconventional form of money creation
(‘cheap money’) with the aim to directly
increase private sector spending in the
economy and return inflation to a target rate.
CHINA’S GOAL IS TO
STABILIZE GROWTH IN
THE WORLD’S SECOND
LARGEST ECONOMY
THROUGH MONETARY
POLICY AND IT WILL DO
THIS IN SIZE AND FORCE.
3China’s monetary system
How different is China’s monetary system? Interest rate liberalisation
China’s monetary policy this year has primarily been driven by How free are China’s interest rates from controls?
three factors:
What does this mean for international markets?
1) growth: slowing growth owing to rising borrowing costs,
As interest rate liberalisation and an economic slowdown have
2) capital account: persistent capital outflows, and pushed up real borrowing costs, the central bank has shifted
3) leverage: debt refinancing for both corporate and its approach to target interest rates, as well as the amount
government sectors. of liquidity. Over the last 18 months, it has introduced tools
that both provide liquidity and guide interest rates. Investors
The PBOC has historically tended to use tools aimed at
will recall that the lending rate in China was only liberalised
adjusting the quantity of money, rather than its price (the interest
on 20 July 2013 and the deposit rate is not yet liberalised.
rate). The traditional quantitative tools include open market
By narrowing the margin between deposit and lending rates,
operations (OMO) and changes to banks’ reserve requirement
the PBoC is forcing banks to pay savers something that is
ratio (RRR). The central bank has preferred quantitative
closer to the actual market price for cash on deposit. One
tools because of the limited effectiveness of interest rates in
reason we have been negative towards Chinese banks
influencing lending.
(beyond the use of off-balance sheet structures and opaque
Two factors explain this limited effectiveness. First, banks’ net wealth management and trust structures) has been the
interest margins were protected by state-determined lending fact net interest margins (NIMs) are being squeezed for the
and deposit rates. Second, state-owned banks tended to direct reasons above.
loans on a political basis to state-owned enterprises. This is
why China’s interest rate cuts do not influence lending rates
as directly as they do in developed markets. Concerns remain
over the lingering high real rates in China despite four rounds
of rate cuts over the past year. We believe there is a high RRR is the minimum amount of deposits
probability that going forward the PBoC will cut interest rates required to be held by commercial banks to
and significantly cut the RRR, the question and concern is, what
will happen if they don’t?
ensure liquidity and reduce leverage.
Figure 1: Real vs nominal rates in China Figure 2: China’s narrowing interest rate gap
■ Nominal 1 year policy lending ■ CPI ■ Lending rates ■ Deposit rates
■ Real 1 year policy lending
10 8
7
8
6
3.51% points
% INTEREST RATE
5 2.3% points
6
PERCENT
4
4 3
2
2
1
0
09 Feb 2011
06 Apr 2011
07 Jul 2011
19 May 2007
21 Jul 2007
22 Aug 2007
15 Sep 2007
21 Dec 2007
16 Sep 2008
09 Oct 2008
30 Oct 2008
27 Nov 2008
23 Dec 2008
20 Oct 2010
26 Dec 2010
08 Jun 2012
06 Jul 2012
21 Nov 2014
2008 2009 2010 2011 2012 2013 2014 2015
Source: Bloomberg
Sources: PBOC benchmark 1-year interest rates; The Economist
4China’s monetary system
The topic of interest rates (ie price of money) continues to Unconventional vs conventional
be under the magnifying glass of the International Monetary
Fund (IMF) despite Chinese officials demanding RMB monetary tools
inclusion in the IMFs Special Drawing Rights (SDR). These
are important special reserve assets that are made up of key
Why has the market missed something so important?
global currencies, including the dollar, the yen, the euro and The goals of China’s monetary policy tools include controlling
the British pound. But without free movement of interest rates systemic financial sector risk, lowering funding costs for the
(abolishing the controls) and full interest rate liberalisation, the economy and boosting lending. We have argued strongly
IMF could quite openly delay the decision to include the RMB that the risk free rate in China will and must be lowered.
as a global currency. The key term “freely usable currency” Without lower funding costs, how can China deleverage and
depends upon being widely used to make payments for reduce its interest cost burden? As an example China has
international transactions and widely traded in the principal 120 per cent corporate debt to GDP. That’s over USD12tn
exchange markets. All this is an exercise of judgment. What of debt in over-leveraged Chinese companies, most of this
is clear is that the Chinese currency has become much less comes from the remains of capital spending by State Owned
competitive over the past five years with the real effective Enterprises (SOEs).
exchange rate rising more than 25 per cent. This explains the Examples of quantitative tools at China’s disposal include
Chinese government’s strong desire for RMB inclusion to drum the Short-term Liquidity Operations (SLO), Standing Lending
up demand for its currency and avoid any sharp depreciation. Facility (SLF), Medium-term Lending Facility (MLF) and
Pledged Supplementary Lending (PSL). Understanding these
tools, their purpose and the potential size is key.
In general, we believe there were three primary factors to be
What is PSL? It is a policy tool to provide cheaper addressed with liquidity tools:
5–10 year funding for targeted infrastructure 1) managing banking sector liquidity, specifically to avoid
projects such as shantytown, water and systemic risk and defaults of trust products and bonds,
education sectors. This lowers long-term rates 2) adding liquidity to ensure lower funding costs and boost
and boosts liquidity. general lending, and
3) providing funds for targeted lending.
We see the first two (SLO, SLF) as tools that fall under the
first category. PSL falls into the third category. Re-lending
and re-discounting were also used to provide liquidity for
lending. MLF, as well as traditional tools such as open
Figure 3: China’s real effective exchange rate market operations (OMOs), Treasury deposits and the reserve
requirement ratio (RRR) also fall into this category.
■ China real effective exchange rate
135 Figure 4: Differences in monetary tools
Less competitive
Lowering cost
125
Managing of funding to Providing
liquidity boost lending targeted lending
115
SLF/SLO RRR PSL
MLF OMO Re-lending
REER
105
MLF Re-discounting
Debt swap (LGFVs Municipal bonds
95 to municipal bonds)
85 More competitive
75 2003 2005 2007 2009 2011 2013 2015
Source: BofA Merrill Lynch Global Research, Bloomberg
5China’s monetary system
In the 12 months to March this year, the central bank clearly
shifted its preference to these newly created targeted tools. Figure 5: 12-month rolling liquidity since 2013 including
The central bank added RMB1.9tn of liquidity to the financial capital flows (RMB trillion)
system through PSL, MLF, SLF and SLO, compared with
RMB1.5tn through traditional tools such as the RRR and open 3,500
market operations.
Then in May 2015, China’s monetary policy appears to have
shifted again. After driving down short-term borrowing costs
3,000
in the interbank market in April, it began to target long-term
interest rates. The PBoC’s policies appeared to be taking a
page out of the Federal Reserve’s playbook. In particular, it
looks similar to Operation Twist, which aimed to bring down
RMB (TRILLION)
long-term borrowing costs by selling short-term securities and 2,500
buying long-term securities.
For example, since May 2015 the central bank has extended
the duration of funding through the MLF from three months to 2,000
six months and begun offering more liquidity through PSL, which
can carry duration of three years or longer. MLF provided at a
rate of 3.35 per cent also helped to lower 6 month interbank
rates by 120bps from 3.4 per cent at end 2014 to 2.2 per cent 1,500
as at end-July 2015. Put another way, this is a lot of cheap
liquidity. Again the softer the economic conditions the more
liquidity and the cheaper the liquidity will get.
1,000 Jan 2013 Jul 2013 Jan 2014 Jul 2014 Jan 2015
What we observe here is the potential for unprecedented
quantities of liquidity flooding the market. We see the possibility Source: PBoC
for RMB4tn in the next 12 months; this is more than the size of
the US Troubled Asset Relief Program (TARP). This is not well It is often when acronyms and complex terms and structures
understood by the broader market. For this reason we coin the are used that confusion arises. Below is a chart (the simplest
term “QE China Style” because whilst the effect will be the same we could find), to explain this all.
as the West (USA and Europe, etc), the way it is executed has
great variances. Over the past 12 months as at end-June 2015, a
total of RMB3.8tn has been injected into the financial system. The
magnitude has gone almost unnoticed by the broader markets.
Figure 6: China’s monetary system overview
RMB exchange rate Current account Capital account
USD
Relending PSL Lending
PBoC Real economy Shadow banking
FX Bank Bond
purchase loans purchase
RRR, SLF, Wealth
FX management
MLF, etc
reserves products
Banks Interbank Banks
liquidity
(SHIBOR)
Source: Macquarie Securities
6China’s monetary system
Local government debt reforms will
create of a huge municipal bond Debt swap to lower interest rates by over 300bps
market. Potentially the largest in global will result in over RMB1tn of interest savings.
financial history.
We believe that the ultimate goal of this policy is to facilitate the
Ministry of Finance’s (MOF) debt swap and fiscal reform. Most
local governments in China have taken on large debts in recent On conservative assumptions, total local government debt
years, with much of this debt being in unregulated, off-balance would rise from RMB24tn (US$3.9tn) and 38 per cent of
sheet financing platforms at high interest rates of 14–20 per cent GDP in 2014 to RMB36tn (US$5.8tn) and fall to 36 per cent of
per annum. In the future, the MOF aims to make local governments’ GDP by 2020. On more aggressive assumptions, it could grow
income and expenditure transparent, with tax revenues and to RMB45tn (US$7.2tn) and 45 per cent of GDP. If 80 per cent of
municipal bond sales funding investment and debt repayment. this debt is rolled into the newly created municipal bond market,
As this fiscal reform will require large debt issuances, the it means that a RMB32-40tn (US$5.2–6.5tn) municipal bond
government wants to bring down its own borrowing costs. market will be created in China over the next five years. The
We estimate that local government debt totalled government has announced debt swaps of RMB2tn (US$320bn)
RMB24tn (US$3.9tn) at the end of 2014, of which just this year and could bring this to RMB3-4tn (US$480–640bn)
RMB1.2tn (US$200bn) were in municipal bonds or 5 per cent or more. It would not be unreasonable to see debt swaps of
of the total. As the government has guaranteed more financing RMB4tn (US$640bn) or more per year for the next five years. This
platform debt this year, we estimate that as much as 80 per cent (or significantly large amount of municipal debt to be issued, stresses
RMB19tn, US$3.1tn) of local government debt could be moved into the importance of financial market liberalization to attract both
the municipal bond market in the coming years. local and foreign buyers.
Figure 7: Municipal bond market and debt: aggressive
■ Other Local Govt ■ Municipal Bonds ■ GDP ■ Debt Debt to GDP (RHS) ■ Muni to GDP (RHS)
150 50
101 40
PERCENT OF GDP
RMB (TRILLION)
86.6 93.5
100
80.2 30
68.7 74.2
58.8 63.6
53.4
41.4 45.4 20
50 31.2 34.2 37.7
24.0 27.6
15.9 19.9
10
2012(A) 2013(A) 2014(A) 2015(F) 2016(F) 2017(F) 2018(F) 2019(F) 2020(F)
Figure 8: Municipal bond market and debt: conservative
■ Other Local Govt Debt ■ Municipal Bonds ■ GDP ■ Debt to GDP (RHS) ■ Muni to GDP (RHS)
45
120
93.5 101 40
100 86.6 35
80.2
PERCENT OF GDP
74.2 30
RMB (TRILLION)
80 68.7
63.6 25
58.8
53.4
60 20
32.3 33.5 34.8 36.3 15
31.2
40 24.0 27.6
19.9 10
15.9
20 5
2012(A) 2013(A) 2014(A) 2015(F) 2016(F) 2017(F) 2018(F) 2019(F) 2020(F)
Source: Bloomberg, National Audit Office, CEIC, forecast (F) from NSBO China 7China’s monetary system
Central bank bond repurchase is needed to create the municipal bond market
For this plan to work, the government needs willing buyers of Clearly the People’s Bank of China has room on its balance
these bonds. There are three potential (and likely) ways this sheet to conduct bond purchases from banks as well. Debt
plays out: securities, whether Treasuries or mortgage-backed securities
1) the government eases bank reserve requirement ratios to (MBS), account for 94 per cent of Federal Reserve assets.
create liquidity Government bonds are 84 per cent of the Bank of Japan’s
assets. In China, they are just 5 per cent, as the majority
2) more foreign investors are allowed into the domestic
of PBoC’s assets (78 per cent) are denominated in foreign
bond market
currency (the foreign-exchange reserves accumulated as a
3) the central bank engages in bond repurchases from banks. by-product of managing the exchange rate).
While options 1 and 2 are likely, they cannot match the sheer
scale that is needed to create a municipal bond market. The
municipal bond market could rise from 2 per cent of GDP
to over 30 per cent of GDP in just five years. This would be
unprecedented growth: the US municipal bond market peaked
in 2009 at below 25 per cent of GDP.
Figure 9: Federal Reserve: securities vs. total assets
■ Assets ■ Securities
5
4
4
3
US$ (TRILLION)
3
2
2
1
1
0.5
Feb 2008
Jul 2008
Dec 2008
May 2009
Oct 2009
Mar 2010
Aug 2010
Jan /2011
Jun 2011
Nov 2011
Apr 2012
Sep 2012
Feb 2013
Jul 2013
Dec 2013
May 2014
Oct 2014
Mar 2015
Source: Bloomberg
FOREIGN OWNERSHIP
OF CHINESE
GOVERNMENT BONDS
IS ONLY 0.4 PER CENT
OF GDP
8China’s monetary system
Figure 10: Bank of Japan: securities vs. total assets
■ Assets ■ Securities
400
350
300
YEN (TRILLION)
250
200
150
100
50
Feb 2008
Jul 2008
Dec 2008
May 2009
Oct 2009
Mar 2010
Aug 2010
Jan 2011
Jun 2011
Nov 2011
Apr 2012
Sep 2012
Feb 2013
Jul 2013
Dec 2013
May 2014
Oct 2014
Mar 2015
Source: Bloomberg
In the last couple of years there has been a change in direction. Foreign currency assets have been losing share of PBoC assets as
PBoC has extended liquidity to banks through newly created facilities such as MLF, and PSL. Since the end of 2013, the PBoC’s
lending to banks has risen by RMB1.7tn. By reference to international experience, this trend has clear room to continue. If for no other
reason than the slowing of foreign capital inflows, the Chinese government has plenty of monetary tools to inject liquidity domestically.
Figure 11: PBoC: Forex vs. total assets
■ Assets ■ Forex
40
35
30
RMB (TRILLION)
25
20
15
10
5
Feb 2008
Jun 2008
Oct 2008
Feb 2009
Jun 2009
Oct 2009
Feb 2010
Jun 2010
Oct 2010
Feb 2011
Jun 2011
Oct 2011
Feb 2012
Jun 2012
Oct 2012
Feb 2013
Jun 2013
Oct 2013
Feb 2014
Jun 2014
Oct 2014
Feb 2015
Source: Bloomberg
9China’s monetary system
Let’s put this into context against other developed markets that have been on this easing path before – the US and Japan.
Analysing balance sheet expansion, the Federal Reserve’s balance sheet doubled in size between October 2010 (before QE2)
and May 2015. It is five times larger than it was in 2008. BOJ’s balance sheet is three times larger than in 2008, while PBoC’s
is double. If PBoC’s balance sheet were to double in size between 2015 and 2020, as the Fed’s balance sheet did between
2010 and 2015, it would be an increase of RMB34tn. This would be in between our two scenarios for the growth in China’s
municipal bond market. Given reasonable expectations for buying activity by banks and foreign investors, it is not a stretch to
imagine the Chinese government in the form of the central bank taking a large share of municipal bonds.
Figure 12: Growth in Central Bank balance sheets
■ Fed ■ PBOC ■ BOJ
6
5
4
INDEX
3
2
1
Feb 2008
Jun 2008
Oct 2008
Feb 2009
Jun 2009
Oct 2009
Feb 2010
Jun 2010
Oct 2010
Feb 2011
Jun 2011
Oct 2011
Feb 2012
Jun 2012
Oct 2012
Feb 2013
Jun 2013
Oct 2013
Feb 2014
Jun 2014
Oct 2014
Feb 2015
Source: Bloomberg, NSBO China
10Is this deja vu?
What happened to equity markets in US and Japan when
the QE program was conducted?
In the simplest form,
Quantitative easing in other countries such as the United States and Japan has had a well-
documented impact on equity markets. The S&P500 has a correlation of 0.96 to the Fed’s bond
QE leads to a stock
purchases over the last two years, while the Nikkei’s correlation with the BOJ’s bond purchases market rally.
stood at 0.92 over the period. If we shorten the period to 15 months in Japan, the correlation
rises to 0.99 – almost perfectly correlated. Over the last 15 months, the value of bonds owned
by BOJ rose 47 per cent, while the Nikkei rose 36 per cent.
Figure 13: S&P 500 and Fed purchase of securities
■ S&P 500 ■ Fed Securities Purchase (RHS)
4.5
2,500
4.0
2,000 3.5
US $ (TRILLION)
3.0
INDEX (POINTS)
1,500 2.5
2.0
1,000
1.5
1.0
500
0.5
Feb 2008
Jul 2008
Dec 2008
May 2009
Oct 2009
Mar 2010
Aug 2010
Jan 2011
Jun 2011
Nov 2011
Apr 2012
Sep 2012
Feb 2013
Jul 2013
Dec 2013
May 2014
Oct 2014
Mar 2015
Source: Bloomberg, Federal Reserve
Figure 14: Nikkei and BOJ purchase of bonds
■ Nikkei ■ BOJ Bond Purchases (RHS)
350
25,000
300
20,000
250
INDEX (POINTS)
YEN (TRILLION)
15,000 200
150
10,000
100
5,000
50
Feb 2008
Aug 2008
Feb 2009
Aug 2009
Feb 2010
Aug 2010
Feb 2011
Aug 2011
Feb 2012
Aug 2012
Feb 2013
Aug 2013
Feb 2014
Aug 2014
Feb 2015
Source: Bloomberg 11Conclusion
Despite all the complex terms and unconventional tools being used, we
believe that QE China style suggests that the Chinese equity markets
could be entering a long-term bull market. One which is driven by PBoC
policy. The Chinese government remains the largest owner of A-shares
with over 50 per cent, so we highlight the vested interests which is very
much needed to help stabilise the economy.
We suggest that through the reforms to SOEs and local Over time, we expect financial liberalization to come with
government fiscal positions, the creation of more diversified more market transparency and an efficient pricing of financial
sources of funding such as a municipal bond market, and the products. This will make for better risk differentiation and asset
accompanying quantitative easing the PBoC will seek to develop, allocation based on risk tolerance and returns. Better market
modernise and stabilise the economy. It is important to note transparency and risk pricing should drive more efficient
that a repurchase program for bonds would be facilitating fiscal capital into higher risk assets from deposits. As pricing of risk
reform, rather than simply bailing out banks or providing liquidity. assets improves overall systemic risk rates should lower. In the
As it is ultimately an economic reform decision, the likelihood is medium term, we believe we have entered into a new phase
even greater, given that the current leadership of President Xi of the investment environment for China.
Jinping and Premier Li Keqiang have made economic reform a The question is once the market understands all this, what will
key priority for the next eight years of their administration. happen to equities in Asia?
AS PRICING OF RISK ASSETS
IMPROVES OVERALL
SYSTEMIC RISK RATES
SHOULD LOWER. IN THE
MEDIUM TERM, WE BELIEVE
WE HAVE ENTERED INTO
A NEW PHASE OF THE
INVESTMENT ENVIRONMENT
12 FOR CHINA.Conclusion
13For more information call Macquarie Investment Management on 1800 814 523,
email mim.clientservice@macquarie.com or visit macquarie.com.au/mim
Convictions that run deep.
Opportunities that matter.
> We’re passionate about what we do and how we do it
> We are custodians of our clients’ interests
> The ability to deliver drives our reputation
> Our extensive experience and expertise gives us an edge
14
MWE013 09/15You can also read
