Zhang Ming: Is Qiaoshui the second Lehman?
First, the new mechanism of the current round of the decline in the US stock market on March 9, 2020, the 12th and the 16th, the US stock market fell down three times.The three-day decline in the Dow Jones Industrial Average reached 7 respectively.8%, 10.0% and 12.9%.As of March 16, the Dow Jones Industrial Average, the S & P 500 Index, and the Nasdaq Composite Index fell 31 points from their 2020 highs.7%, 29.7% vs. 29.5% have entered a bear market.Other aggregate stock markets have also shown a decrease.The decline in US stocks this time is not the same as the decrease in 2000 and 2008. It is mainly reflected in the transformation of institutions. The main products are different from the centralized purchases.U.S. stocks have risen about 11 years from 2009 to the present. Before 2017, U.S. stock growth continued to rely on companies repurchasing their own stocks to continue to maintain, but after 2017, the transformation model changed.First, some traditional investors, pensions and insurance companies that we considered to be more conservative in the past have begun to significantly increase the proportion of equity assets.This is mainly because lower interest rates lower the returns of the asset side and increase the present value of future fixed expenditures of these institutions.For example, the current equity assets of Norwegian pension funds have increased to about 60-70%; Second, a large amount of investment by these institutions is concentrated in passive investment products and machine trading strategies such as ETFs.These products are very similar to the investment structure of the strategy, and overall they are doing more; third, the very typical factual corporate-oriented characteristics of the US stock market in recent years.In particular, most of the market value of the Nasdaq market is concentrated in the top few tech blue chip companies.This means that whether institutional investors buy stocks or indexes, they are both stocks of blue chip technology companies.There is of course no problem in buying these relatively profitable corporate stocks, but the high level of investment targets will significantly increase the industry ‘s common risks when there are problems with technology companies or when the market encounters exogenous shocks.To sum up, the new mechanism for the growth of US stocks since 2017 is that institutional investors with low risk appetite used to trade a large number of technology blue chip stocks through ETFs and machines.There are two drivers of this crisis.First, the international spread of the epidemic, the US government’s poor response, and the decline in investor risk appetite led to the collective sale of risky assets.Second, the decline in oil prices has caused problems with junk debt issued by US shale oil and gas companies, resulting in damage to investors and investors were forced to reduce the proportion of risky assets, which triggered a new round of collective selling.When everyone is long and there is no counterparty, this crisis will continue to intensify.For example, in recent market rumors, the famous hedge fund Bridgewaters (Bridgewaters) encountered a major breakthrough.One of the reasons is that funds belonging to RiskParity strategic trading have repositioned US stocks and high-yield bonds with relatively low volatility in the previous period.With the impact of the epidemic and the decline in oil prices, U.S. stocks and high-yield bonds fell at the same time. The fund had to sell stocks and high-yield bonds at the same time, and suffered huge losses.At present, there is already a point of view to compare the explosion of the bridge water to the collapse of Lehman Brothers. The author does not agree with this point of view.The most important difference is that Lehman was an institution with a very high real leverage ratio, and it was an important market maker in the US asset-backed commercial paper (ABCP) market before the 2008 crisis. The collapse of Lehman Brothers led to wholesale financing in the United States.The cessation of the market has led to counter-party risk (Counter-Party Risk) in many other financial institutions.Under the above, Qiaoshui is an affiliate. Whether in the wholesale financing market or the derivatives trading market, Qiaoshui’s core integrated circuits are far inferior to Lehman Brothers in Dublin.Overall, although the reduction has been reduced by 30% or so, the reduction in the adjustment of US stocks is due to external shocks. Investors began to realize that economic growth and corporate profit prospects will not cause the current high valuation of US stocks, so they beganThe repricing of US stocks.Before this, I am afraid that the adjustment of the US stock market is not over.Some investors seem to be optimistic that the current stock market should be copied.Second, the type of crisis in this round of financial market turmoil At present, we are not yet sure whether the turmoil in the global financial market will cause a global financial crisis, nor can we completely determine the type of crisis in this round.But at least we can be sure that the current crisis is neither a debt crisis, nor a balance of payments crisis, nor a currency crisis.Although liquidity problems have occurred, the root cause of this crisis may not be the liquidity crisis.The liquidity crisis occurred in 2008 because many financial institutions that issued ABCP (such as Lehman Brothers) defaulted on the currency market, and the current currency market default has not yet occurred on a large scale.In the final analysis, this crisis is still due to the continuous growth of stocks for many years and the reduction of risk-free interest rates. In the case of many large institutions that must increase the proportion of equity assets for a long time, huge exogenous shocks lead to the initial investment of investors ‘equity and cause them to continue to adjustCaused by.From this perspective, the crisis may be less severe in cross-market transmission and globalization than in 2008.As Summers said, the outbreak of this crisis did not originate from within the US financial system, but from the real economy.However, because the root cause of this round of financial turmoil is not the debt crisis, the balance of payments crisis, the currency crisis and the liquidity crisis, the effect of the Federal Reserve ‘s rescue of the market through monetary policy may not be so good unless the Fed expands the assets purchased by the expanded easing policy to the US stock marketEFT even stocks.To cope with the risk impact of the epidemic, it is more necessary to benefit from fiscal policies, because fiscal policies can exert structural effects, but budget fiscal policies are either limited or some countries do not want to understand, so fiscal policy coordination is much more difficult than monetary policy.Third, the country where the potential risk point occurred is not necessarily the country where the financial crisis will erupt in the future.Looking at it now, I think two types of countries are more dangerous: First, the southern European countries represented by Italy may break out of the sovereign debt crisis again.Italy is now experiencing complete negative economic growth, and its government debt is relatively high.The key is absolute. The yield of national debt is always low, including several other southern European countries in Greece. The yield of national debt was a few, even more than 5%.Once the financial market is transformed into a risk-averse model, investor cities are concerned about the potential risk points, and southern European countries are particularly in line with the vulnerability of future risks.Second, some emerging market countries may break out of the corporate sector debt crisis.For example, Argentina, Brazil and Brazil and South Africa and other emerging market countries have continued current account deficits and borrowed more foreign debt. In the past few years, due to capital inflows, the corporate sector has increased leverage relatively quickly. These countries may be potential risk points in the future.Another example is that in some countries in Southeast Asia, the current impact of the industry chain due to the outbreak and spread of the epidemic, coupled with the accumulation of higher non-financial corporate sector debt in the past decade, is also more dangerous in the future.In general, in the future, there will be a new round of sovereign debt crisis in southern European countries, and a new round of corporate debt crisis in emerging market countries, which will trigger two secondary crises (such as the devaluation of currencies in emerging market countries and the holding of sovereign debt in southern European countries)Of financial institutions have a large area of precipitation), and their probability should not be underestimated.Author: Chinese Academy of Social Sciences World Economics and Political international investment director, researcher Zhang Chen Li editor