发帖
雷达卡
Balancing the "Impossible Trinity" becoming even harder
A shifting external environment is making China's task of balancing the trilemma of independent monetary policy, freedom of capital flows & a stable FX rate increasingly challenging. In this report, we look at how China lowered its total debt servicing cost via rate cuts/debt restructuring to cushion the weight of a rising debt load. However, against a backdrop of rising US rates this has come at the expense of increasing pressure on the capital account. Our rate sensitivity analysis suggests that debt servicing costs are likely to be a real constraint on China ability to raise rates over the next 2-3 years. This lack of rate flexibility threatens to exacerbate capital outflows.
Financial stresses rise rapidly once debt servicing cost to GDP reaches 13-15%
Our analysis of a variety of different banking systems over the past 20-30 years suggests that the level of financial stress in a banking system starts to increase significantly if total debt servicing cost/GDP rises above c13-15%. China’s debt servicing cost peaked at 12.9% of GDP in 2014. Since that date through cutting interest rates and restructuring debt this has fallen back to 10.7% in Q416. This gives China some head room but not much given China’s debt load will need to continue to compound at 13-15% to meet a 6.5% GDP growth target. China therefore faces a policy dilemma – rising debt servicing burden that requires lower rates, and potentially higher inflation and higher US interest rates that require high rates domestically. This dilemma will likely become more challenging in the next 2-3 years.
Liquidity risk not credit risk: The capital account will remain in focus
A backdrop of higher US rates and flat to falling Chinese rates is likely to only increase the propensity of the holders of RMB liquidity to convert it to US dollars placing further downward pressure on China’s already depleted FX reserves. Despite the investor focus on bank asset quality we are of the opinion that it is a change in the flow or cost of liquidity that actually precedes rising stress in a financial system. In this regard we view the building pressure on China’s capital account as a real and present danger for Chinese bank investors over the next 1-2 years that receives far less attention than bank loan impairment charges (which continue to be actively “managed”). If US rates rise as expect we see a further tightening of capital controls as a very real possibility.
Cautious on China banks: A weaker credit impulse & fading reflation trade
The MSCI China banks index is now trading 1 standard deviation above its 5 year average 1 year forward P/E multiple and a 5 year low implied cost of equity (i.e. expensive vs where it has traded for the past 5 years). We think the risk reward profile now looks poor given the rising risks to what we believe have been the core drivers of the re-rating (i.e. the China reflation trade). Whilst we remain underweight the China banks in a regional context within China we have a clear preference for the retail-orientated banks (ICBC and CMB) over the more wholesale funded orientated bank (joint-stock banks and some city commercial banks). The latter, we believe, would be more sensitive to the current rise in market rates as we laid out in our recent report March 23rd “Chinese Banks – Financial deleveraging: Rising funding pressure”.
20170407-Deutsche Bank-China Debt：Testing the Impossible Trinity.pdf
(2.06 MB, 需要: 5 个论坛币)
提升卡
置顶卡
沉默卡
变色卡
抢沙发
千斤顶
显身卡
京公网安备 11010802022788号
