最拥挤的交易

摘要：随着短期融资成本波动性的消失，采用短期资金加杠杆买长期债券是一个有利可图，但也是越来越拥挤的交易。美国利率预期的变化将引发资金成本，债券价格和人民币的波动性，而波动性有可能溢出至其它资产类别。香港市场的情绪已飙升到历史性的极端。极度乐观的市场情绪，伴随着创纪录的低市场波动性对于多头头寸来说并不是一个好的情景。市场回调渐行渐近。长期投资者应暂停交易，等待市场调整带来的对于香港市场更好配置机会。

Summary: With disappearing volatilityin short-term funding costs, using short-term leverage to load up longer-termbonds have been a profitable but increasing crowded trade. ShiftingUSinterestrate expectation will trigger volatility in funding costs, bond prices and theRMB. And volatility can spill. Hong Kong sentiment hassurged further to its historical extreme. Euphoric sentiment, combined withrecord-low volatility, is not a safe set-up for long trades. Long-terminvestors should pause for better allocation opportunity in Hong Kong ahead.

这是今天盘前的英文报告《最拥挤的交易》的英文版。中文版随后发。

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Volatility in short-term funding costs has disappeared, together with volatility in equity, currency and bonds: Since the stock bubble burst in June 2015,China’s short-term funding costs have been kept within a tight range of just above 2%. Steady short-term funding costs have encouraged leverage by borrowing short aggressively while buying longer-term bonds. These heavily concentrated leveraged positions have driven China’s 10-year government bond yield to its lowest on record – roughly on par with the lowest in late 2008 (Focus Chart 1).

Problem with such a crowded trade is that any hiccup in the short-term funding costs, or any decline in bond prices can trigger a violent reversal – much like the unwinding of the RMB carry tradeafter the currency reform that changed the expectation of RMB’s one-way appreciation. Already,China’s10-year bond yield has failed to hold at its historical lows.

A change in the Fed’s interest rateexpectation can set off a surge in funding costs, or a fall in bond price –both detrimental to a crowded and highly leveraged trade. The ECB’s failing toexpand QE, and Rosengren’s metamorphosis from a dove to a hawk bode ill forinterest rate outlook in the near term. Brainard speaks on Monday. If rates were kept from rising, then the RMB will be under depreciation pressure. That is, if volatility does not rise in the bond market, it can come from the RMB.

Focus Chart 1: Vol of short-term fundingcost flat-line encourages leverage; 10-year yield fails to hold at historicallows.

Inflation, property and commodity prices have risen with money supply; bond yield yet to budge: In the past,PPI, property and commodity prices, M1 narrow money supply, as well as bondyields are closely correlated (Focus Chart 2). While correlation is not equal to causation, the reason for such a tight correlationis simple: significantly-expanding money supply should change the growth andinflation outlook, and thus should be reflected in rising property and commodity prices, as well as declining bond prices.

But bond yields have diverged from the other variables in the current cycle. Or bond prices have failed to reflectrising inflation due to commodity and property price pressure induced bydramatic monetary expansion. Such dichotomy of expectations implied indifferent assets, together with the crowded trade to leverage up to buy bonds aforementioned,will make bonds vulnerable in the near term. And volatility can spill to other assets, before funds could start the rotation from bonds to stocks.

Focus Chart 2: Money supply, inflation, property and commodity prices have surged, but 10-year refuses to budge.

Market sentiment reaches its historical extreme; correction looming: in our most recent note titled “Consolidation” on August 22, 2016, we documented that sentiment in both US and HK market is approaching its historical extremes. Such euphoric sentiment tends to suggest looming market correction.In our most recent sentiment model update, the Hong Kong market sentiment has surged even higher to its historical extreme, on the back of the news that mainland’s insurance companies can now buy Hong Kong stocks via the Connect Program (Focus Chart 3).While its good news for Hong Kong, and the removal of the total quota in the Connect program is an important structural liquidity change, insurance companies tend to be a cautious bunch, and Hong Kong H-shares do not offer too much diversification benefits.

In the past, when sentiment is at suchheights, it tends to augur for a looming market correction. ShiftingUSinterest rate expectation, potential risks inChina’s highly leveraged bond market built on the disappearing volatility of short-term funding cost, as well as potential RMB depreciation pressure can all be catalysts. TheUSmarket has suffered the largest single-day correction since Brexit during US Friday’s trading, while Asian markets were closed, and yet to have a chance to reflect the expectation changes. Long-term investors should pause for better allocation opportunities ahead in Hong Kong.

Focus Chart 3: HK sentiment at historicalextremes, portending a looming correction.

Hao Hong, CFA

2016-09-12