Fed Rate Cut Likely Boosts China's Housing Prices, Limited Impact on A-Shares

The Federal Reserve's interest rate cuts will inevitably push up housing prices in China, but it requires a process.

However, the impact on A-shares is extremely limited.

1.

Once the Federal Reserve enters the interest rate reduction process, it also creates room for other countries to cut interest rates.

On the early morning of September 19th, the Federal Reserve announced a 50bp rate cut, exceeding the market's overall expectation of 25bp, causing a global stir.

In fact, the symbolic significance of this action by the Federal Reserve is far greater than its actual impact.

The Federal Reserve's first rate cut of 50bp indicates that the U.S. economy has fully entered a period of monetary policy reversal and easing, which will initiate a new round of monetary easing.

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The biggest difference in this round of the Federal Reserve's monetary easing compared to the past is that G20 countries, and even more countries, are in sync with monetary easing, which will inevitably create a resonance effect of monetary easing among major global economies.

If we exclude the impact of the Russia-Ukraine conflict forcing European capital, industry, and talent to flow to the United States, the Federal Reserve's monetary easing since March 2022 has had a far less impact on the global economy than before.

Apart from making various countries seem a bit depressed, it has not shaken the foundation of major economies.

There are two key factors that have led to this result.

However, it is undeniable that the United States is still the most powerful country in terms of national strength and international influence.

As long as the Federal Reserve's monetary policy does not reverse and initiate a significant rate reduction process, other countries that ignore the reality of high benchmark interest rates in the United States and cut interest rates alone will see their easing money flow to the United States in large amounts.

The dividends of their rate cuts will inevitably be harvested by the United States.

Once the Federal Reserve enters the interest rate reduction process, it also creates room for other countries to cut interest rates, ensuring that the interest rate differential with the United States will not be pulled wide again.

2.

The biggest impact of this round of the Federal Reserve's interest rate cuts on China's asset prices is to create room for the People's Bank of China to cut interest rates and increase global demand, which is conducive to China's trade exports.

Currently, after two and a half years of continuous and significant interest rate hikes by the Federal Reserve, the markets of various countries around the world are facing a shortage of money, undervalued asset prices, low social consumption, and pessimistic expectations, urgently needing monetary easing to inject incremental money into the market.

However, countries are also waiting for the Federal Reserve's monetary policy to reverse and enter the interest rate reduction process.

Once the United States was the world's largest consumer market.

Once the Federal Reserve enters the monetary easing, the U.S. economy regains vitality, social income rises, and asset prices are driven up by incremental money, forming a wealth effect.

Social consumption will inevitably pick up, forming incremental demand, which is conducive to various countries exporting to the United States, and ultimately enhancing their own economic vitality.

For example, after the outbreak of the 2008 U.S. subprime mortgage crisis, the Federal Reserve entered a new round of monetary easing.

China purchased a large amount of U.S. Treasury bonds with its current account surplus, taking over the subprime mortgage crisis for the United States, in exchange for U.S. support for China's integration into the Western system led by the United States, and significantly exporting and scaling up investments, ultimately allowing the Chinese economy to maintain double-digit growth for many years.

After the Federal Reserve significantly cuts interest rates, capital will be extremely cheap, and various institutions will inevitably acquire cheap capital in various ways to purchase high-quality assets that were severely undervalued due to monetary tightening at low prices.

As incremental capital pours in and pushes up asset prices, forming a profit effect, it will then manipulate various public opinions to deceive local capital to take over at high prices, achieving a new round of wealth harvesting.

However, looking at the global situation, China, with its national strength and military power, can ensure the autonomy of its economy and not be completely controlled by the United States.

Based on this, China, based on the theory of the impossible trinity of Mundell, chooses to maintain independent monetary policy and exchange rate stability, giving up the free inflow and outflow of capital, in order to control international capital's manipulation and wealth harvesting of Chinese asset prices.

Overall, it can achieve stable asset prices and eliminate the large ups and downs caused by the large-scale inflow and outflow of international capital.

The biggest impact of this round of the Federal Reserve's interest rate cuts on China's asset prices is to create room for the People's Bank of China to cut interest rates and increase global demand, which is conducive to China's trade exports.

3.

Currently, China urgently needs various types of capital to take over the high positions of the assets of local governments and developers in China.

The reality of the huge debt accumulated by local governments and developers in the early stage determines that the monetary easing of various countries will promote the rise of housing prices in China through various forms.

It has always been the case that the real estate market in China's core cities has been almost completely isolated from international capital through purchase restrictions, effectively eliminating the possibility of international capital flowing in large amounts to drive up housing prices in China, rapidly increasing the labor costs of Chinese society, reducing the competitiveness of China's economy, and forming potential crises such as asset bubbles.

However, in order to integrate into the international system led by the United States, Vietnam and India had to open up their stock markets, futures markets, real estate markets, equity related to the national economy and people's livelihood, and rural land to international capital.

In the end, not only were these assets completely controlled by international capital, but also through the continuous ups and downs driven by money, the existing wealth was harvested and the political calculations of the United States were achieved.

The dividends of development and the right to lead were completely handed over to the United States, making development unsustainable.

In this round, China's core cities have completely lifted purchase restrictions and directly opened up the real estate market to international capital.

There are three logical reasons for the government to make this choice.

Currently, China urgently needs various types of capital to take over the high positions of the assets of local governments and developers in China, in order to relieve the huge debt accumulated by local governments and developers in the early stage.

This means that the current Chinese real estate market will face a "resonance effect" of monetary easing by various economic entities including China and the United States, that is, the monetary easing of various countries will promote the rise of housing prices in China through various forms.

It is the nature of capital to seek benefits and avoid harm.

Rational capital will inevitably choose undervalued high-quality assets to guard against risks and ensure returns.

Naturally, the real estate in core cities has become the best choice for international capital.

Currently, China's real estate market is showing a "structured" trend.

Some areas of the Yangtze River Delta and the Pearl River Delta are driven by the continuous inflow of population and the continuous improvement of industrial added value, and the basic situation is steadily improving.

However, other areas are facing an oversupply of supply, a net outflow of population, and the consumption of industrial added value, leading to a continuous decline in the basic situation.

Capital naturally chooses some areas of the Yangtze River Delta and the Pearl River Delta, and gives up other areas.

However, the housing prices in the core areas of cities such as Shanghai, Shenzhen, Hangzhou, and Guangzhou are seriously overvalued, and the development has tended to be saturated.

The resources in and out have shown a dynamic balance, and there is very limited room for further price increases.

Capital is difficult to obtain high returns and inevitably has limited interest.

Capital, industry, and talent flow along the low housing price areas adjacent to the core areas.

The improvement of the real estate market's basic situation requires the large-scale inflow of incremental capital, industry, and talent, and the continuous improvement of infrastructure.

The highest realm of investment gains is to earn the double increase of the basic situation and valuation of Davis.

Currently, not only is the basic situation of housing in the surrounding areas of Shanghai continuously and steadily improving, but the valuation is extremely low.

More importantly, it has been completely opened to international capital.

Naturally, the large-scale influx of various types of capital will inevitably push up the housing prices in the area, and there is a great profit space, but it requires a process.

4.

In the future for a long time, even if the Federal Reserve continues to significantly cut interest rates, the trend of A-shares will still be based on the improvement of intrinsic value, and there will definitely not be a big ups and downs driven by money.

The direct performance is half-dead and listless.

However, the stock market is different.

In fact, the Chinese government has redefined finance, completely denying the wealth zero-sum distribution of asset prices driven by money to rise and fall, and making it fully return to the basic attribute of assisting the real economy.

It requires asset prices to fluctuate around the intrinsic value within a certain range, and to prevent international capital from acquiring China's high-quality assets through the capital market, especially key enterprises related to the national economy and people's livelihood and industrial security.

Based on this, the government is currently unwilling to let too much international capital enter A-shares on a large scale.

The government not only sets limits on the amount of international capital entering A-shares but also controls the total amount of capital flowing into A-shares through the national team's occupation of the quota of the Shanghai-Hong Kong Stock Connect and QFII.

In addition, regulatory authorities control the trend of A-share prices through the counter-trend transactions of the national team, ensuring that they meet the actual needs of China's economy and effectively prevent asset bubble risks.

However, it has also limited the returns of international capital, making it lose the motivation to enter A-shares on a large scale.

In fact, China does not currently need A-shares to rise and fall driven by a large amount of incremental money.

In the white-hot stage of the game between China and the United States, it is even more important to ensure that stock prices fluctuate around intrinsic value and resolutely eliminate financial risks to prevent social wealth from being harvested and the resource allocation mechanism of the market from being disrupted.

This means that in the future for a long time, even if the Federal Reserve continues to significantly cut interest rates, the trend of A-shares will still be based on the improvement of intrinsic value, and there will definitely not be a big ups and downs driven by money.

The direct performance is half-dead and listless.