The asset allocation of China and the US in October by Zhongtai Securities: How did the bonds perform when the bull market started?

The Zhitong Finance App learned that Zhongtai Securities published a research report saying that through a review of three periods of similar markets in history, Zhongtai Securities discovered that if policies were compounded by sentiment, it would be difficult to suppress the bond market for a long period of time. At the beginning of this round of the 924 market, there was also quite an impact on the bond market. Interest rates on bonds rose rapidly. Ten-year treasury bonds once rose to 2.2%, but have now declined somewhat. As far as the US is concerned, there is a contradiction between some indicators that measure commodities and the fundamentals of the US economy. The final performance of the inflation-deflation game can be reflected by the ratio between commodities and bonds. This ratio is currently above the neck line of the potential head and shoulder pattern. Short-term KST buying signals and the steady performance of medium-term indicators may drive a rebound in inflation.

1. How did bonds behave when a bull market started in history?

On September 24, 2024, the State Information Office held a press conference. The heads of the People's Bank of China, the General Administration of Financial Supervision, and the Securities Regulatory Commission introduced the relevant situation of financial support for high-quality economic development and announced the introduction of a series of policies. In the field of the real estate market, the 924 press conference further proposed a series of policies to support the real estate market, including reducing interest rates on existing mortgages, unifying minimum down payment ratios, and optimizing reloan policies for affordable housing. The 926 Politburo meeting did not emphasize the principle of “housing without speculation”; instead, it proposed the goal of “stopping the decline and stabilizing the real estate market” for the first time. This marks a major shift in real estate policy. In terms of supporting the equity market, the 924 press conference also announced a series of policies aimed at supporting the stable development of the stock market. The governor of the central bank announced that it will launch two new monetary policy instruments: exchange facilitation for securities, funds, and insurance companies, and special refinancing for stock repurchases. 926, the Central Finance Office and the Securities Regulatory Commission jointly issued the “Guiding Opinions on Promoting the Entry of Medium- and Long-Term Capital into the Market”, which aims to increase the regulatory inclusiveness of medium- and long-term capital investment and promote the entry of various medium- and long-term capital into the market. After the meeting, the Wandequan A Index rose 26% in 5 trading days. Meanwhile, A-share turnover continued to expand, reaching 34,83,543 billion yuan on October 8, a record high in recent years.

There are three prominent characteristics of this round of the market. First, the fundamentals are weak and lack strong support from fundamentals; the second, the policy shift is rapid and firm; and the third is that the market is starting quickly. Combining these characteristics, Zhongtai Securities mainly chose three comparable market segments, namely the May 1999 market, June 2014, and December 2022 market, respectively. What they all have in common is that they lack fundamental support, and they were launched against the backdrop of favorable policies and low sentiment in the stock market. The most similar analogy to the 1999 macro environment that Zhongtai Securities can compare is the 1999 519 market. In terms of asset trends and industry rotation, due to the lack of valid data in 1999, Zhongtai Securities focused on the market prices in June 2014 and December 2022. In comparison, the trend in equity and debt relationships is more similar to December 2022. Zhongtai Securities believes that no round of the market can be completely compared to history, but some experiences and lessons can be learned from history.

Judging from the overall macro background, policy introduction, and equity market feedback, this round has the most in common with the 1999 519 market. Judging from the funding side and the direction of policy introduction, this round of the market is quite similar to 2014-2015. From the perspective of the speed of policy shift and the pressure on financial management and redemption in the bond market, the current market is highly similar to the end of 2022.

Through a review of these three periods of market, Zhongtai Securities discovered that if the stock market is bullish caused by policy and emotion, it is difficult to suppress the bond market for a long period of time. Normally, bond interest rates will rise rapidly in the early stages of a bull market rise, and may even trigger negative financial feedback events such as the end of 2022, but if fundamentals do not improve in the future, the bond market will still return to the logic of fundamental pricing and gradually become immune to the impact of rising stocks. At the beginning of this round of the 924 market, there was also quite an impact on the bond market. Interest rates on bonds rose rapidly. Ten-year treasury bonds once rose to 2.2%, but have now declined somewhat.

2. What stage is Pringer in China and the US?

Looking at Pringle's six stages, China is still in phase 1, while the US is in stage 3. The barometer will only improve unless the fundamentals continue to improve. Therefore, the policy-driven rise will lag a bit behind on the barometer. Short-term game-level suggestions can focus on changes in the price momentum KST indicator.

After the September 24 meeting of the three ministries and commissions, the equity market performed very strongly. Continued sustainability of Zhongtai Securities still needs to observe three indicators. 1. We must continue to observe changes in bonds, because the inflection point change in the current round of bonds is an important indicator to confirm the direction of equity. 2% is currently a strong pressure point for ten-year treasury bonds, and we should pay attention to the coordination of subsequent fiscal policies. 2. Focus on the three barometers: bonds, stocks, and commodities. Policies affect sentiment more; only improvements in fundamentals will affect barometer scores. 3. Focus on whether the equity market will continue to expand in the future, and whether technology and consumption can lead the way. In terms of broad-based indices, focus on whether the China Securities 500, China Securities 1000, and China Securities 2000 have better performance compared to the general market.

As far as the US is concerned, there is a contradiction between some indicators that measure commodities and the fundamentals of the US economy. Oil is currently the most important variable in the bulk. The final performance of the inflation-deflation game can be reflected by the ratio between commodities and bonds. This ratio is currently above the neck line of the potential head and shoulder pattern. Short-term KST buying signals and the steady performance of medium-term indicators may drive a rebound in inflation.

Risk warning: risk of model measurement bias; risk of untimely update of information data in research reports; policy exceeding expectations.