摩根士丹利-中国股票策略：利率和政策趋势将支撑2021年银行股-2021.2.1-24页 (2).pdf

Richard.XDaniel.FChiyao.HKatherine.XH.LAttractiveMORGAN STANLEY ASIA LIMITED+Richard Xu,CFAEQUITY ANALYST+852 2848-6729Daniel FangRESEARCH ASSOCIATE+852 2848-7368Chiyao HuangRESEARCH ASSOCIATE+852 3963-4624Katherine LiuEQUITY ANALYST+852 2239-1924Morgan Stanley appreciates your support in the2021 Institutional Investor All-Asia ResearchTeam Survey.Request your ballot here.China FinancialsAsia PacificIndustryViewChina FinancialsChina Financials|Asia Pacific Asia PacificRate and policy trend shouldsupport bank shares in 2021We believe economic trends and the need to control financialrisks will ultimately drive upside surprises to interest rates inChina,which should support the bank NIM trend.Thiscombined with reduced policy window guidance should furthersupport bank shares.Economic recovery and the need to control financial risks will ultimately drivepotential upside surprise to interest rates which could also support bankearnings.With China nominal GDP growth rebounding from 3%in 2020 to over11%in 2021,we expected the related rising credit demand will lead to higher ratesgiven moderating growth in credit supply.In addition,much higher than expectedgrowth in household financial asset growth of 15.6%in 2020 and strongconsumption payment volume growth imply higher business activities thanofficial data,which could also put upward pressure on rates.Lastly,a large poolof short term liquidity,evidenced in over Rmb100tn of demand deposits and ondemand investment products such as MMFs could lead to a quick rise in assetprices and financial risks,particularly given the rise already in money velocity.This deserves more careful and timely management with proper market ratelevels as a signal,which could drive upward rate expectations as well.This,combined with new bank funding regulation that could help contain funding costat banks,should support stable or improving NIM at banks.A number of bank micro management policy reversals could gradually reducemarket concerns.Some of the key policies include:1)newly added KPI for bankmanagement teams related to profitability,dividends and share performancewhich account 25%of total KPI now,2)reduced guidance on loans yields andliberalization on credit card loan rates,which should support a loan yieldrebound,3)reduced guidance on provisions and bank profits should support arebound in bank profit growth,and 4)likely moderating guidance on SME loanscould reduce concerns on asset quality risks,and we expect a decline in overallfinancial system NPLs via front-loading of NPL digestion in the past year,as wellas improved cash flow for more companies and households amid the economicrecovery.Leading mid-sized banks have more room to go,and some rebound in state-owned bank valuation is likely.We expect strong household financial assetgrowth support leading retail banks with a rising wealth management business,including PAB,Industrial bank and CMB,and rising rates and the policy reversalto support some SOE bank re-rating particularly given high dividend yields.Morgan Stanley does and seeks to do business withcompanies covered in Morgan Stanley Research.As aresult,investors should be aware that the firm may have aconflict of interest that could affect the objectivity ofMorgan Stanley Research.Investors should considerMorgan Stanley Research as only a single factor in makingtheir investment decision.For analyst certification and other important disclosures,refer to the Disclosure Section,located at the end of thisreport.+=Analysts employed by non-U.S.affiliates are not registered withFINRA,may not be associated persons of the member and may notbe subject to FINRA restrictions on communications with a subjectcompany,public appearances and trading securities held by aresearch analyst account.1February 1,2021 09:29 PM GMT Further evidence of potential upside surprise on interest ratescould support bank earningsDespite the clear trend of financial policy tightening since October 2020,we believethere is still a lot of market debate about liquidity and interest rate trends particularlygiven policy makers comments about no sharp turn in monetary policy and lowerinterbank rates in late December.While the recent rebound in interbank rates hasserved as a reminder of policy direction,we believe we could still see upside surprises tointerest rates in China.We believe interest rates will ultimately be determined by the pace of economic growthand related credit demand,the pace of growth in credit supply and the need to containan asset bubble and financial system risks.As the market,corporates and even policymakers have not experienced the level of nominal GDP rebound from around 3%to 11%for many years,we could see a greater rebound in interest rates than expected by theaforementioned parties.In addition,much higher than expected growth in household financial asset growth of15.6%in 2020 based on data released recently and strong consumption paymentvolume growth imply higher business activities than official data,which could also putupward pressure on rates.Lastly,a large pool of short term liquidity,as evidenced by over Rmb100tn of demanddeposits and on demand investment products such as MMFs,could lead to a quick risein asset prices and financial risks,particularly given the rise already in money velocity.This deserves more careful and timely management with proper market rate levels as asignal,which could drive upward rate expectation as well.Much stronger than expected growth in household financialassets reflects robust income growth but could also add to assetprice risks if not managed carefullyIn light of newly released data on mutual funds,bank WMPs and private funds,weestimate total household financial assets could have increased by over Rmb25tn in2020,or 15.6%yoy,which is above our expectation compared to an Rmb19tn additionseen in 2019.Even without the impact of the equity market performance,HH financialassets also increased more than Rmb19tn or 13%YoY.The largest contributor to HH financial assets growth is retail deposits that addedRmb11tn in 2020,indicating still robust HH income growth as the economy recovers.On the other hand,HHs stock holding and mutual funds benefited from a strong equitymarket performance,while bank WMPs added over Rmb2tn despite the pressure tomeet the transition deadline by end of 2021.While a signal of robust household income growth,we note the strong HH financialassets addition could also gradually lift asset price expectations,thus creating upwardpressure on interest rates.2 Level of economic recovery unseen for many years and likelystill underestimated due to large under-captured businessactivities in official data evidenced in strong payment and wealthdataWith China nominal GDP growth expected to rebound from 3%in 2020 to 11%in2021,as well as strongly rebounding industrial production and profits that stood at7.3/20.1%in December 2020,we see overall economic growth in China as well on trackfor 2021(please see:China Economics and Strategy:Is China Overtightening?No(31Jan 2021)for more details).As a result,credit demand should remain strong,adding toupside pressure for interest rates combined with tightened credit supply.In addition,we see increasingly under-captured business activities.Beside the strongconsumption payment volume that we have been highlighting in recent years,we believethe much stronger than expected household financial assets is further evidence thatshows that many new forms of business activities and related household income areunder captured in the official data.The consumption payment volume recovery also remains ahead of the rebound in retailsales according to the PBOC quarterly payment report and our own channel checkswith major payment providers in China.PBOC reported bankcard consumption paymentvolume went up by 4%yoy in 3Q,while 3rd party payment handled byNetsUnion/Unionpay surged 41%/14%in 3Q,indicating even PBOC is under-capturing thetrue retail payment strength,as we believe a large portion of the incremental retailactivity and related payment is taking place via P2P transfer,which shall nevertheless bespotted by third party payment providers.Our channel checks with leading payment firms indicate a further pick-up inconsumption payment growth,which could well rebound to 15%in 4Q20,indicating astronger economic rebound than official data suggests,putting upward pressure oninterest rates.Importantly,we think the majority of under-captured retail activity doesnot pay any tax as it is not even recognized as retail sales,thus leading to more wealthcreation at households,as well as rising household financial assets.Exhibit 1:HH financial assets increased by Rmb25tn in 2020,aboveour expectation,.0%2%4%6%8%10%12%14%16%18%-5,00010,00015,00020,00025,00030,0002017201820192020Annual addition of HH financial assets(bn)Addition,totalAddition,without equityyoy,totalyoy,without equitySource:CEIC,WIND,PBOC,SSE,Trust Association,Chin Bank Association,AMAC,CBIRC,Morgan StanleyResearchExhibit 2:.mainly contributed by the growth in deposit and equitymarkets020004000600080001000012000DepositStock holdingMutual fundWMPInsuranceOthersAddition of HH financial assets by category20192020eSource:CEIC,WIND,PBOC,SSE,Trust Association,Chin Bank Association,AMAC,CBIRC,Morgan StanleyResearchNote:stock holding includes our estimate of individual controlling shareholders stake3 Large pool of short term liquidity calls for timely managementby PBOC with signals on proper market ratesWe estimate total demand deposits,including retail and corporate,together with on-demand investment products such as mutual funds and on demand bank WMPs,toreach over Rmb100tn in December 2020,with a notable acceleration in the last twomonths of 2020.Such a large scale of short term liquidity combined with already risingmoney velocity could lead to increasing speculation in the capital market or propertymarket,generating asset price risk and financial risk if left unattended by regulators.Specifically in the interbank bond market we saw rising leverage at the end of 2020 thatprobably led to PBOCs liquidity tightening in January 2021.Cash bond trading volume isto a large extent contributed by non-bank institutions such as brokers,mutual funds,bank WMPs and so on,while their position is typically leveraged using overnight repowith large banks acting as the main funding source in the interbank market.We saw theinterbank repurchase volume from non-bank institutions rising sharply in November andDecember 2020 and reaching Rmb80tn in December 2020,indicating a large pool ofliquidity in the interbank market that also drove down bond yields,which is likely aresult of PBOCs continuing liquidity injection in November and December in light of SOEExhibit 3:Third party payment handled by NetsUnion surged by 41%yoy,reaching Rmb97tn in 3Q202,70012,68040,51054,72057,63069,01078,49063,63078,65097,21016.3%36.5%40.9%0.0%5.0%10.0%15.0%20.0%25.0%30.0%35.0%40.0%45.0%-20,00040,00060,00080,000100,000120,0002Q183Q184Q181Q192Q193Q194Q191Q202Q203Q20NetsUnion payment volume-Rmb bnYoYSource:PBOC,Morgan Stanley ResearchExhibit 4:Payment volume at Unionpay,which handles interbankbankcard payment,picked up 14%yoy in 3Q204%14%51,1500%10%20%30%40%50%60%-10,00020,00030,00040,00050,00060,0002Q153Q154Q151Q162Q163Q164Q161Q172Q173Q174Q171Q182Q183Q184Q181Q192Q193Q194Q191Q202Q203Q20UnionPay Payment Volume-Rmb bnYoY GrowthSource:PBOC,Morgan Stanley ResearchExhibit 5:3Q20 bankcard consumption payment was Rmb30.8tn,+4%yoy compared to+1%in 2Q204%-20%-10%0%10%20%30%40%50%60%-5,00010,00015,00020,00025,00030,00035,000Quarterly bank card consumption volume-Rmb bnBankcard consumption volume growth quarterly-YoYSource:PBOC,Morgan Stanley ResearchExhibit 6:Consumption bankcard payment volume/retail salesremained above 300%in 3Q20305%49.3%20.0%25.0%30.0%35.0%40.0%45.0%50.0%55.0%0%50%100%150%200%250%300%350%3Q081Q093Q091Q103Q101Q113Q111Q123Q121Q133Q131Q143Q141Q153Q151Q163Q161Q173Q171Q183Q181Q193Q191Q203Q20Bankcard consumption payment volume/retail salesBankcard penetration rate(RHL)Source:NBS,PBOC,Morgan Stanley Research4bond defaults.We think the large pool of short term liquidity deserves more careful and timelymanagement by PBOC,sending out signals on proper market rates expectation throughopen market operations,as it has done in January 2021,thus creating upside to interestrates which could support banks NIM.The sharp surge in interbank rates during 2H ofJanuary also signals that management needs to be timely to avoid further volatility inthe market.Exhibit 7:Total demand deposits together with on-demandinvestment products such as open-ended mutual funds and on-demand bank WMPs reached over Rmb100tn in December 20200.0%2.0%4.0%6.0%8.0%10.0%12.0%14.0%66,00071,00076,00081,00086,00091,00096,000101,000106,000Jan-19Apr-19Jul-19Oct-19Jan-20Apr-20Jul-20Oct-20Total short term liquidityTotal short term liquidityyoySource:CEIC,PBOC,Morgan Stanley ResearchExhibit 8:M1 continued to rise throughout 2020,indicating increasingmoney velocity-2.0%0.0%2.0%4.0%6.0%8.0%10.0%12.0%46,00048,00050,00052,00054,00056,00058,00060,00062,00064,000Jan-19Apr-19Jul-19Oct-19Jan-20Apr-20Jul-20Oct-20M1M1yoySource:CEIC,PBOC,Morgan Stanley ResearchExhibit 9:Cash bond trading volume largely contributed by non-bankinstitutions and smaller banks0%10%20%30%40%50%60%70%80%90%100%Jan-19 Mar-19May-19 Jul-19 Sep-19 Nov-19 Jan-20 Mar-20May-20 Jul-20 Sep-20 Nov-20Cash bond trading volume by institutionNon-bank institutionsCity/rural commercial banksSOE banks and JSBsSource:CEIC,Morgan Stanley ResearchExhibit 10:Non-bank institutions,mainly as borrowers,account for90%of interbank repurchase volume,reaching Rmb80tn in December20200%10%20%30%40%50%60%70%80%90%100%-10,00020,00030,00040,00050,00060,00070,00080,00090,000Interbank repurchase-Non-bank institutionsInterbank repurchase-Non-bank institutions%of totalSource:CEIC,Morgan Stanley Research5 Financial policy tightening should gradually lead to tighter creditsupply and demand,which should reduce asset bubble risks overtime,but market expectation management still importantWith financial tightening policies for bank asset growth,shadow banking credit growthand corporate bond issues already issued since late 2020,we expect TSF growth toslow to around 11%in 2021 from 13.6%in 2020 and M2 growth to slow to 9%in 2021from 10.5%in 2020.Summary of Financial Policy TighteningDateCredit ChannelTightening SignalImpactDec-2020Bank B/SExpansion of Systematically Important Banks(SIB)Credit growth by banks newly classified as SIB could slowdown to meet higher capital requirementDec-2020Cap on property-related loan exposureRestrict mortgage and developer loan growth for some banksDec-2020Bond issuanceTighter requirements on transparency andinformation disclosurePressure corporate bond issuance in the short term butbetter for bond market quality in the longer termDec-2020Penalty on several credit rating agencies involved inrecent bond defaultsPressure corporate bond is