---
title: "Hong Hao: Now the safety cushion is very high, only optimistic people can make money."
type: "News"
locale: "en"
url: "https://longbridge.com/en/news/102957050.md"
description: "Proceed with caution when investing in US dollar bonds."
datetime: "2023-11-22T06:00:09.000Z"
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---

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# Hong Hao: Now the safety cushion is very high, only optimistic people can make money.

**Key Points:**

1.  Offshore Chinese USD bonds are a highly volatile market. Although there may be a rebound, it's important to remember that it's only a temporary rebound because the fundamental issues have not been resolved.
    
2.  USD bonds are highly speculative, so I won't easily make a move.
    
3.  Many people are unaware that Hong Kong only adds a little over 10,000 new houses each year. Its supply side is tightly controlled, similar to Maotai, so it won't experience a sharp decline unless mortgage rates suddenly rise to levels like 8% or 10% in the past.
    
4.  Certain companies like Vanke are among the best-performing real estate enterprises and are very stable. When Vanke's USD bonds dropped to a yield of 50%-60%, I recommended buying, but not many people caught the bottom.
    
5.  Many people focus on negative news such as foreign capital withdrawal, but when the market rebounds, they say foreign capital is bottom fishing. We need to analyze rationally and objectively.
    

**In cases where there are cheap stocks with high dividend yields, such as some banks distributing a 10% dividend with ample cash reserves of 120 trillion yuan, they may not immediately rise.**

**But if you make such a decision at this time, I don't think you will lose money because the safety cushion is very high. These safety cushions are given by others because they are too pessimistic.**

**So pessimistic people may always be correct, but only optimistic people may make money.**

In a recent online roadshow, Hong Hao, Chief Economist of the CICC, provided in-depth analysis of the volatility in the offshore Chinese USD bond market and the trends in Hong Kong's real estate market.

Hong Hao is currently the Chief Economist of CICC Investment Group and a member of the China Chief Economist Forum.

He has previously served as the head of the research department at BOC International, Chief Global Strategist at CICC, and has worked in the London, New York, and Sydney offices of international financial institutions such as Citigroup and Morgan Stanley.

Hong Hao has been a spokesperson for the CFA (Chartered Financial Analyst) brand and was voted by Institutional Investor magazine as the number one macroeconomic and market strategy analyst. Bloomberg has praised him as one of the few who accurately predicted the peak of the 2015 bubble and as "China's most accurate strategist." He has also been named "Best Overseas Strategist" by New Fortune magazine.

The following is a summary of the key points compiled by Touzi Zuoye Ben (WeChat ID: touzizuoyeben), shared with everyone:

## **USD Bonds are Highly Speculative, I Won't Easily Make a Move**

Q: Recently, many people are concerned about Chinese USD bonds in the real estate sector, especially with Vanke's USD bonds dropping so much. Many developers are interested in the current price of USD bonds and whether it's a good time to buy. What are your thoughts?

Hong Hao: Offshore Chinese USD bonds have been declining since their peak in 2021.

At the end of last year, there was a strong rebound along with the market recovery, and many bonds increased three to four times. So if you were bold enough, you would have made money from that wave. But now, they have fallen back to the levels of the fourth quarter of last year.So, this is a market with very high volatility.

Originally, there might have been policies released in the fourth quarter of last year, and based on past experience, everyone thought that prices would definitely rise. Many people rushed in and made profits from the first rebound, but many did not exit.

So, although there can be rebounds, it is important to remember that it is just a rebound because the fundamental issues have not been resolved.

The space for improvement in living demand is not as large as before. Our long-term sustainable annual increase in demand is probably around 14 to 15 million people, which is about 5 million households. With an average of about 100 square meters per household, it can be easily calculated that it is about 500 to 600 million square meters, which is sales of about 6 to 7 trillion yuan.

So, until the total sales volume stabilizes, people still have some fantasies.

Therefore, market expectations need to be reshaped. Only after reshaping and stabilizing, incorporating new expectations into prices, can the market stabilize. This is the first point.

The second point is when investing, it is important to see who holds the assets.

In the past, many investors were Chinese companies. Because the environment was very good before 2021, the RMB appreciated and US dollar bonds offered an interest rate of seven to eight percent, so they bought together.

But problems arose last year. Many Chinese companies disclosed public information showing losses of billions of US dollars. At this time, the assets they held were very fragile, and as long as prices rose slightly, they would sell. So the pressure will continue until these weak buyers clear their positions.

So, although there is a rebound, it is very difficult to grasp. It depends on everyone's risk preference.

I am a very conservative person, and US dollar bonds are too speculative, so I won't easily sell.

Individual companies like Vanke, I think Vanke is one of the best-performing real estate companies, and it is very stable. Moreover, there are almost no bonds due in the next 12 months. It can also engage in debt swaps, such as swapping three-year debt for ten-year debt. There are many things that can be done. As long as there is cash flow continuity, sustained sales, and so on, there are no major issues.

So at that time, when Vanke was falling, the yield at maturity was about 50% to 60%. I recommended buying, but not many people caught the low point.

## **Supply in the Hong Kong property market is firmly controlled, making a sharp decline unlikely**

Question: Hong Kong property prices have declined in the past two years, returning to the levels of 2018. What do you think will happen to the Hong Kong real estate market next?

Hong Hao: For the younger generation in Hong Kong, it is difficult to buy or even rent a house because it is too expensive.

But the Hong Kong property market has its own characteristics, with a very low vacancy rate, about 1 to 2 percent. In contrast, the vacancy rate in mainland China is about four to five percent.

So, I think the supply and demand situation in Hong Kong is still manageable, but it is indeed very expensive, the most expensive market in the world.

And there is not much support to keep housing prices so high. If everyone is overextended, who will be left to buy?Commodity prices continue to rise and increase, which indeed attracts people to chase after them because the prices keep going up. However, when the prices reach a certain point, speculators can no longer afford them, which creates an awkward situation.

Recently, Hong Kong has implemented many measures, such as reducing down payments and exempting stamp duty for non-permanent residents without Hong Kong permanent residency, which used to be 30% and very expensive.

There is also a plan to attract talents from mainland China through the High-level Talents Scheme, but it was later found that these talents went to sell insurance instead. Although these individuals are talented and have excellent educational qualifications, they lack relevant work experience, which is highly valued in Western markets.

Therefore, it is difficult for these individuals to generate new demand until they find employment.

There has been a rebound recently because people feel hopeful, but then they realize that they still cannot sell, and the market starts to decline again.

**Hong Kong has another characteristic, which is that there are only over 10,000 new houses added each year. Many people are unaware of this. The supply side is tightly controlled, just like Maotai liquor. Therefore, it is unlikely to experience a sharp decline, unless mortgage rates suddenly rise to levels like 8% or 10% in the past.**

From 2001 to 2003, mortgage rates were very low. Because the Federal Reserve implemented a zero interest rate policy, Hong Kong followed suit. So at that time, mortgage rates in Hong Kong were very low, but it did not prevent housing prices from plummeting. This is the relationship between supply and demand. However, if someone bought at the bottom in 2003, they would have made a fortune by now.

Question: This year, Hong Kong hopes to attract outstanding talents and has introduced the "High-level Talents" program based on the previous "Professional Talents" and "Elite Talents" programs. Recently, they have also started promoting investment immigration. There is a statement saying that they hope to reach a supply of 10 million in the future. Is such a large supply realistic?

Hong Hao: **It is unrealistic.**

The main reason is that housing in Hong Kong is too expensive. It is better to stay in Shanghai, which is also an international metropolis. It is convenient and affordable to go anywhere and go shopping.

**Hong Kong's comparative advantage is shrinking, whereas it used to be very obvious. But now, the gap between Hong Kong and mainland China is narrowing.**

Question: Another option is Singapore. Everyone is going to Singapore.

Hong Hao: Don't go to Singapore. The housing prices in Singapore are even higher than in Hong Kong. If you think you can't afford to live in Hong Kong, then you definitely can't afford to live in Singapore. Not only are the houses small, but it is also very hot there.

## **There is no need to be too pessimistic. The safety net is very high now.**

Question: Recently, the central government has announced that it will issue an additional 1 trillion yuan of national bonds due in 2023 in the fourth quarter of this year. What do you think will be the chain reactions or impacts on the future in this process?

Hong Hao: **The significant significance of this is not about how much money is being issued, but the fact that the annual fiscal deficit target has been changed in the fourth quarter. That is the most important part.**

If I remember correctly, this is the second time in history that the fiscal deficit target has been changed before the end of the year, and special national bonds have been issued.

This is significant. Previously, it was believed that we needed to lie flat, but now it is clear that we don't need to lie flat anymore. **This year, a portion will be issued first, and the rest will be reserved for next year, which also has its own plan. There is no problem with the 5% (GDP growth target) this year, and next year, we will make further efforts, and there will be no problem with the 5% (GDP growth target) next year as well.**Recently, I made a forecast. Last year at this time, people were pessimistic, and this year it seems that everyone is even more pessimistic. This is because the expected rebound did not materialize, or it appeared and then disappeared, so everyone feels that they should just lie low.

I don't quite agree with the saying "buy more, lose more". This year's GDP growth target is 5%, but real estate sales revenue has decreased by 50%, real estate investment has decreased by 10%, and sales have decreased by 8-10%. All data related to real estate looks bad. However, China's economy has still grown by 5%, with manufacturing and infrastructure investment growing by more than ten percent. There are other aspects that are growing.

Many people think that real estate is not doing well and that the cycle cannot be sustained.

Looking at this issue from a different perspective, if China's economy continues to invest in real estate, it is actually worse news.

So there is no need to be too pessimistic. Of course, prices are very cheap now, so if you have positions, you need to have a certain risk preference.

Because everyone is focused on various negative news, saying that foreign capital is withdrawing, but when the market rises, foreign capital comes back, and then they say that foreign capital has bottomed out. We need to analyze this rationally and objectively.

There are some cheap stocks with high dividend yields, such as some banks that have distributed a 10% dividend and have very ample cash with 120 trillion yuan in deposits.

They may not rise immediately. But if you make such a decision at this time, I don't think you will lose money because the safety cushion is very high. These safety cushions are given by others because they are too pessimistic.

So pessimistic people may always be right, but only optimistic people may make money.

I believe that in the end, the market will have means of regulation. Good companies will always be able to survive in the long run, and companies that provide value will be able to develop better.

Hong Hao, Certificate of Practice No.: A0230511060001

For more insights from experts, please follow the link below:![Investment Homework](https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/c8f39a05-1dff-4b75-a6b2-4297a490c020.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg)

Article authors: Fan Zilong, Wang LiSource: Investment Homework

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