Fixed Income：Questionnaire survey shows changes in market sentiment

This report must be read with important disclosures and analyst certifications located on the end of the report. 1 Equity Research Report Fixed Income Questionnaire survey shows changes in market sentiment Huatai Research Analyst ZHANG Jiqiang SAC No. S0570518110002 SFC No. AMB145 zhangjiqiang@htsc.com 22 February 2022 │ China (Mainland) Weekly Investors still prefer shares to bonds despite recent corrections Huatai fixed-income analysts conducted a monthly bond market survey on 17 February. The two macroeconomic matters causing concern for investors are the sustainability of credit growth and the domestic property market. Investors expect growth stabilization and easing credit policies, but have mixed opinions on the possibility of RRR and interest rate cuts in the next three months. Of asset classes, investors still favor stocks, and the acceptance of commodities and properties in tier-1/2 cities has increased. We project the 10Y treasury bill yield at 2.7-3.0%, and short-/medium-term rate bonds, high-yield bonds, and capital bonds are gaining popularity. This week, we recommend investors keep track of changes in geopolitics, February LPR data, and property market policy. Main focus: sustainability of credit growth + China’s property market The sustainability of credit growth and the status of the domestic property market are the key indicators of the effectiveness and pace of growth stabilization measures. Property regulatory policy has eased marginally on the demand side, and a possible change in the regulators’ stance and possible further demand policy relaxation merit attention. We see a low possibility for the PBoC to cut rates again, although the window for quantitative easing has not closed yet. It is affected by the Fed rate hike, but ultimately depends on economic growth stability and credit easing in China, and is therefore largely dictated by internal factors. Investors expect growth stabilization and easing credit policies Compared with a month ago, investors are now more optimistic about the pace of economic growth in 2022. First, the economic growth target for 2022 looks likely to be set at c 5.5%. Second, January TSF growth beat expectations, meaning credit easing is taking effect. Third, there are signs of marginal easing of property regulation policy on the demand side. In our opinion, tentative adjustment of property policy, an increase in the number of local infrastructure investment projects, the expected improvement in funding demand in the peak season after the Chinese New Year, and the ample re-lending quota for carbon emission reduction could lead to additional RMB1tn demand for financing. Investors divided on rate cut, but similar views on money supply Investors are divided on whether an RRR or interest rate cut might occur in three months. We see a low possibility of a rate cut by the PBoC in February, and also in March given the Fed’s potential rate hike. On the other hand, the window of rate cuts for the year has not yet closed. Also, we do not see it as necessary for a short-term RRR cut. Structural tools are the PBoC’s first choice. As for money supply, investors are generally optimistic, and the majority expect money supply to be on the neutral or moderately accommodative level. Investors prefer shares to bonds The largest number of investors prefer stocks. Shares offer greater relative value than bonds, but from a short-term perspective, we have yet to see any main drivers, as the Fed rate hike has not materialized, and geopolitical conflicts could still bring disturbances. For the bond market, bond yields should peak at 3.0% over the next three months, and the trough level should be 2.7%; the term spread could widen further, with the credit spread remaining unchanged or narrowing slightly. Among different varieties, short-/medium-term government bonds, high-coupon assets, and tier-2 capital bonds are better options. Band trading, leveraging and the duration adjustment strategy are favored by investors. Risks: stricter financial regulations, and faster QE exit by the Fed than we expect. This report must be read with important disclosures and analyst certifications located on the end of the report. 2 Fixed Income Disclaimers Analyst Certification I/We, ZHANG Jiqiang, hereby certify that the views expressed in this report accurately reflect the personal views of the analyst(s) about the subject securities or issuers; and no part of the compensation of the analyst(s) was, is, or will be, directly or indirectly, related to the inclusion of specific recommendations or views in this report. General Disclaimers and Disclosures This research report has been prepared by Huatai Financial Holdings (Hong Kong) Limited (hereinafter referred to as “HFHL”). The informatio