CITIC Securities: Two Future Policy Game Points

Key Points After the September Politburo meeting, Chinese assets surged with a pro-risk bias. Following the Fed's rate cut announcement, Chinese assets began domestic policy games. A typical policy trade consists of three stages: policy signal confirmation, policy details implementation, and policy effect evaluation. Currently, the market is pricing in policy signal confirmation, and future policy trades will gradually move towards the latter two stages. The market is most concerned about fiscal and real estate policies, as they determine whether leverage can expand, affecting the height and sustainability of the pro-risk asset rebound. 1. How large will the future fiscal policy scale be? This is the first policy game point. 2. "To promote the stabilization of the real estate market and strictly control the increment of commercial housing construction," under strict control of increments and optimization of existing stock, how much leverage space do local governments have? This is the second policy game point. 3. By strictly controlling increments, promoting consumption, and stabilizing house prices, the policy focus is on consumer prices and residential asset prices, marking a shift from production supply to household demand in policies. Events On September 26, the Central Political Bureau of the Communist Party of China held a meeting to analyze and study the current economic situation and economic work. Comments The September Politburo meeting ignited bullish sentiment in the market, with A-shares surging and the Shanghai Composite Index returning above 3000; bond prices fell sharply, with the 10-year government bond yield rebounding to around 2.1%. The market's excitement stems from the clear change in tone and wording of this meeting. On September 24, the three financial departments jointly held a press conference, providing liquidity portfolio policies, marking a shift in monetary policy. This Politburo meeting saw a significant change in economic and policy orientation, which the market defines as a sign of a comprehensive policy shift, boosting market confidence. The assessment of the current economy at this Politburo meeting added some caution, "Some new situations and problems have emerged in the current economic operation"; the assessment of monetary policy was more direct and pragmatic, "implementing a forceful rate cut"; the assessment of real estate, "promoting the stabilization of the real estate market"; the assessment of fiscal policy, "issuing and using ultra-long-term special national bonds and local government special bonds well". The above points are not only areas of significant market attention and discussion but also the most fully priced information. If August saw a global race to cut rates ahead of the Fed, initiating a global rate cut trade, then in late September, China began a round of domestic policy trading. The core of Chinese policy trading is a shift from steadfast policies to easing, which extends beyond monetary policy to fiscal, real estate, consumption, and other dimensions. A typical policy trade requires three stages: policy signal confirmation, policy details implementation, and policy effect evaluation. Currently, the market is pricing in policy signal confirmation, and future policy trades will gradually await specific policies and policy effect evaluations. In anticipated policies, the market is most focused on fiscal and real estate. Fiscal and real estate also largely determine whether China's leverage can expand and if financial conditions can truly open up. "Issuing ultra-long-term special national bonds and local government special bonds," does this refer to the issuance of new national bonds and special bonds within the year, and what is the scale of issuance? What scale indicates a better fiscal expansion effect? This is the first focal point of recent policy trading. "Strictly control the increment of commercial housing construction," this statement follows the expression "promote the stabilization of the real estate market." Strictly controlling the increment means that new investments in real estate, including land acquisition and preparation operations, will be constrained by policies with the aim to "optimize the existing stock." Under the guidance of controlling the increment and optimizing the existing stock, how much leverage space do local governments have? This is the second focal point of future policy trading. Author of this article: Zhou Junzhi (SAC license number: S1440524020001), source: CSC Macro Research Team, original title: "Macro Zhidao | Confirmation of Policy Signals"