Further Opening Up and Reform of China s Capital Market

Transcription

1 Further Opening Up and Reform of China s Capital Market Haizhou Huang January 7, 2016

2 China economy and capital market: Finding new normal 1

3 Macro: We expect China GDP to grow 6.9% in 2015 and 6.8% in 2016 CICC economists forecast Macro Forecast (%) 2013A 2014A 2015E 2016E GDP QoQ (NBS, SAAR) GDP YoY % 9 Real GDP Nominal GDP CPI PPI IP Nominal Retail Sales Nominal urban FAI Customs Exports Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2014: 7.3% 2015E: 6.9% 2016E: 6.8% 5 Customs Imports USD/CNY Source: Wind, CICC Research 2

4 Financing cost is still high Non-financial listcos ROE vs. Financial institution RMB weighted average lending rate Financial institution RMB weighted average lending rate Non-financial listcos ROE Source: Wind, CICC Research 3

5 Financial condition is still too restrictive for growth recovery % Real lending rate at multi-year high Real interest rate: lending rate - CPI CPI YoY Lending rate Source: Wind, CICC Research 4

6 Investment contracted % FAI YTD YoY Source: CEIC, CICC Research 5

7 Diverging trends of real rates across sectors % p.a. 14 real interest rate for consumers 12 real interest rate for home buyers 10 real interest rate for producers / /2011 4/ /2012 4/ /2013 4/ /2014 4/ /2015 real interest rate for consumers = benchmark 1 year saving rate - CPI inflation real interest rate for producers = benchmark 1 year lending rate - PPI inflation real interest rate for home buyers = benchmark mortgage rate - 70 city average housing price inflation Source: CEIC, CICC Research 6

8 A stronger RMB suppressed exports % 2010= Delivery Value for Export YoY (LHS) 130 REER (RHS) Source: CEIC, CICC Research 7

9 Government bond yield dropped % 1-year government bond yield 10-year governmeng bond yield Source: CEIC, CICC Research 8

10 Corporations leverage rising faster in recent years Debt/GDP broader public sector Household Non-financial corporations % (Debt-deposits)/GDP broad public sector Household Non-financial corporations % Source: CEIC, CICC Research 9

11 Corporate bond yields fell % 3-year AAA MTN yield 5-year AAA MTN yield Source: CEIC, CICC Research 10

12 But liquidity to gradually ease internally Wealth management products yields have been falling (%) Wealth management products' expected yields (1 year) Bill-discount rate gradually down Bill Direct Discount Rate (Monthly): 6M: Pearl River Delta Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Source: Bloomberg, Wind, CICC Research 11

13 Liquidity in equity markets: margin financing: global comparison 10% US Taiwan Japan A-share (as of total mkt cap) A-share (as of free float) (Margin financing balance / total mkt cap) 9% 8.7% 8% 7% 6% 5% 5.1% 5.4% 4% 3% 2% 1% 0% 2.6% 2.6% 2.0% 1.0% 0.5% Source: Wind, CEIC, CICC Research 12

14 Liquidity in equity markets: market turnover rose from previous trough ADTV (Rmb bn) ADTV/Free float (RHS) Average 2,500 9% 8% 2,000 7% 1,500 6% 5% 1,000 4% 3% 500 2% 1% 0 Jan-03 Jun-03 Nov-03 Apr-04 Sep-04 Feb-05 Jul-05 Dec-05 May-06 Oct-06 Mar-07 Aug-07 Jan-08 Jun-08 Nov-08 Apr-09 Sep-09 Feb-10 Jul-10 Dec-10 May-11 Oct-11 Mar-12 Aug-12 Jan-13 Jun-13 Nov-13 Apr-14 Sep-14 Feb-15 Jul-15 0% Source: Wind, CICC Research 13

15 Liquidity in equity markets: margin financing balance once declined sharply Daily change of margin financing balance Margin financing balance Rmb bn 50 Change in margin financing balance SHCOMP (RHS) 5,500 Rmb bn 2,500 Margin financing balance SHCOMP (RHS) 5, ,000 4,500 2,000 5,000 4, ,000 1,500 4,000 3,500 3, ,000 1,000 3, , ,500 2,000 2, , ,500 Source: Wind, CICC Research 14

16 A-shares sector valuation: many sectors are above historical average (PE valuation) MAX MIN CUR AVG Source: Wind, Go-goal, CICC Research 15

17 H-shares: most sectors valuation are below historical average 12m fwd P/E (X) Current 10-yr average yr high yr low Insurance Div. Financials Banks Transportation Real Estate Cons. Disc. Utilities Capital Goods MSCI China Telcos Health Care Materials Cons. Stap. Energy I.T. Source: Bloomberg, Fact set, CICC Research 16

18 Rethinking of long-term issues: Further Opening up and reform of capital market 17

19 China Story: Reform and Opening-up In 1978,the third Plenary Session of the 11 th CPC Central Committee launched China s historic reform and opening-up. Later, the 14 th CPC National Congress and the third Plenary Session of 14 th CPC Central Committee confirmed that the Chinese economy should be marked-based and opened-up. Solid improvements in opening-up since China s WTO entry in 2001 have substantially boosted system reforms. According to Mr. DENG Xiaoping, China should open up both internally and externally in accordance with laws of socioeconomic development, and reform is in essence internal opening-up. 4,000 (US$ bn) China's Foreign Trade 3, ~2000, introducing foreign capital and expertise into China After 2000, going abroad 3,000 2,500 2,000 1,500 1, Source:CEIC, CICC Research 18 18

20 Benefits from reform and opening-up China s growing importance in global trade China s foreign exchange reserves expanded rapidly 12.0% Foreign trade as % of world Export Import (US$ bn) 4,000 Foreign Reserve 3,821 3, % 3, % 2, % 2, % 1,500 1, % % Source:Haver Analytics,CICC Research Source:Haver Analytics,CICC Research 19 19

21 Where is China now? (per capita GDP relative to US) China(12.7) Korea(48.9) Malaysia(20.2) Japan(72.6) UK(74.2) Brazil(21.9) US= Source: CEIC, CICC Research 0 20

22 China in a four-dimensional glance Large economy: space to grow and gravity model Developing country: long way to catch up via industrialization and urbanization Transition economy with strong government: effectively implement policies under strong leaders Over insurance? 21

23 Deposits vs Debt held by households, corporate, and the government (as end of June 2015) Deposits and Debts by sectors (as of June 2015) Households Deposits Debts Rmb 53.7 trn 79% of GDP Rmb 25.1 trn 37% of GDP Non-financial corporations Deposits Debts Rmb 42.2 trn 62% of GDP Total Rmb 98.5 trn 144% of GDP Excluding debt of local govt Rmb 84.9 trn 124% of GDP Government Deposits Debts RMB Deposits held by government entities T-bond & Local govt bond Rmb 20.2 trn 30% of GDP Rmb 11.3 trn 17% of GDP RMB Fiscal Deposits Policy financial bond Rmb 4.1 trn 6% of GDP Rmb 10.6 trn 16% of GDP Subtotal Local govt debt Rmb 24.3 trn 36% of GDP Rmb 13.6 trn* 20% of GDP Foreign Exchange Reserves USD 3.7 trn (Rmb 22.9 trn) 34% of GDP Total (including FX reserves) Total (including debt of local govt) Rmb 47.2 trn 70% of GDP Rmb 35.5 trn 52% of GDP * The RMB 13.6 trn total outstanding local government debt is under review after the preliminary release of the updated local government debt audit in September We await for further details of contingent debt breakdown for an updated estimate of local government debt Source: CEIC, Wind, Official Audit Office, China Railway Corp., CICC Research Note: The percentage to GDP ratios are divided by four consecutive quarters GDP from 3Q12~2Q13. 22

24 New economy sectors outperformed in recent years 1, New economy - old economy (RHS) A-share new economy index A-share old economy index (100) 0 (200) Source:Fact set,bloomberg,cicc Research 23

25 Debt ratio: a tale of two enterprises % Debt ratio of SOEs Debt ratio of non-soes Source: CEIC, CICC Research 24

26 Economic reforms after the third plenum Two main directions of reform Market playing a decisive role in the allocation of resources Economic development benefiting all people to a greater extent and in a more equitable manner Areas of reform SOE reform Change in the government s role Fiscal and tax system: reforming the tax system, stabilizing the tax burden, making budget more transparent Land system reform and integrated urban-rural development A new round of opening-up Easing of the family planning policy Financial reforms on top of the agenda! 25

27 Path to financial reform Market system Allowing the establishment of privately-owned small/mid-sized banks Registration-based IPO reform, tightened bond market regulation, increasing the proportion of direct financing Developing inclusive finance Money rates More market-based exchange rate regime; accelerating interest rate liberalization Promoting two-way opening-up of capital markets Accelerating the process towards achieving RMB capital account convertibility Reducing FX reserves holding; increasing RMB bond issuance; 2% + 2% Implications on JGB; USD; etc. Financial regulation Improving regulatory coordination mechanism; establishing a deposit insurance system; introducing a market-oriented exit mechanism for financial institutions 26

28 Fast Forward: Global economic growth contributors Emerging Asian economies to contribute close to 55% to global growth in next 10 years US and EU to contribute less than 20% Two economies with double digit growth contributions Contribution to World economic growth by region between Source: IMF, BBVA 27

29 Thank you!