China bond market rally may have legs
2015-11-07 19:03阅读：
Nikkei Asia Review, 4 Nov. 2015,
Joe Zhang,
中国货币供应过量和经济疲软会导致利率下行。利率下行会利好股市、房地产和债市。但国内股市和地产已经高估，所以只能投债券。债市会有一段好日子。 不过, 通胀终究会来到, 何时是拐点?
我不知道。
http://asia.nikkei.com/Viewpoints/Perspectives/China-bond-market-rally-may-have-legs
For about eight years, China banned
real estate companies from issuing bonds domestically. More than 50
developers therefore tapped the offshore market in Hong Kong,
typically issuing high-yield, or junk, bonds at interest rates of
8-13%.
Just as many investors were fearing
defaults, the ban on domestic issuance was suddenly lifted in July.
In the few months since, Chinese property companies have issued
hundre
ds of billions of yuan in bonds that will mature in 3-5 years and
pay interest of just 4-8% a year per annum.
More than a few observers have shouted
'Bubble!': how could such large quantities of debt from issuers
rated overseas as below investment grade be priced so cheaply, near
to the yields of Chinese sovereign debt?
Before we can be sure of this being a
bubble, we have to answer one question: are falling interest rates
a trend in China?
The ingredients are already in place:
a sluggish economy and diminished government appetite for fiscal
stimulus on the one hand and rising bank credit on the other. The
growth of around 13% in broad-money supply month after month
confirms monetary conditions are loose.
When money supply grows too fast, it
is an indication of rising inflation to come. But where is the
inflection point? Evidence shows the time lag between rising
liquidity and higher inflation varies from cycle to cycle and from
country to country.
If inflation is indeed in a long-term
downward trend, interest rates and bond yields could continue to
fall for a long time. In that scenario, the bond market today may
not be in a bubble at all. And indeed, we may be at the starting
point of a bond market renaissance that could last a
decade.
What about the equity market? It
sounds counterintuitive but famed American investor Warren Buffett
has shown that gross domestic product growth is negatively
correlated with the performance of the equities market, at least
sometimes. In a 2001 speech, Buffett showed that across a
long-enough time span, GDP growth did not matter to asset prices
and that interest rates were the only thing that
counted.
Overall, the Dow Jones Industrial
Average moved a mere one point between 1964 and 1981 while nominal
gross national product grew 373%. Over the next 17 years, the Dow
surged 10-fold while GNP rose only 177%. What drove the vast
difference in equity market performance between the two
periods?
Buffett attributed it to changes in
long bond yields. At the end of 1964, yields were 4.20%. They rose
to 13.65% by the end of 1981 before falling back to 5.09% by late
1998.
Today while U.S. interest rates are set to
rise, Chinese domestic interest rates are probably on their way
down. But U.S. interest rates, even after several increases over
the next few years, will remain low in absolute terms and by
historical standards.
In this sense, is there not a case to
be made for Chinese equities and bonds to outperform?
As to the lack of correlation between
GDP growth and equity market performance, another case comes to
mind. From 2000 to 2005, China's economy was exceptionally strong
but the domestic stock market was dismal. In my view, this was due
to high inflation.
In the past three decades, the U.S.
bond market has performed very strongly due to a long trend of
falling inflation and interest rates. Bill Gross, formerly of the
Pimco Total Return Fund, was a hero of the long trend.
While many argue that the U.S. bond
market's rise was due largely to the U.S. Federal Reserve's loose
monetary policy, in fairness, it had more to do with weaker returns
in the underlying economy and lower growth rates.
All along, observers have described,
with a tone of alarm, the rising bond prices and complimentary
falling yields as 'a bubble', particularly in recent years. Most
have stopped in recent months, just as yields on many U.S. and
German government bonds fell toward zero or beyond.
If U.S. experience is any guide,
China's bond market should be in for a long rally. However, China's
fast-rising corporate debt-to-GDP ratio is alarming. Will the
growing pile of debt lead to runaway inflation? If so, when? My
honest answer is, I do not know, but the ratio may just reflect
statistical anomalies.
While continued high growth in the
money supply will erode the yuan's purchasing power and lead to
inflation in the long run, until then we may see an extended bond
market rally given the glut in the real estate sector and excessive
valuations in the equity market. Retail and institutional investors
have to find somewhere to park their money, after all.
Joe Zhang is chairman of China Smartpay Group and
author of 'Party Man, Company Man: Is China's State Capitalism
Doomed?'
