Guotai Junan: "Early repayment" reaches historic lows, private sector expectations gradually warming up.

Guotai Junan Securities released a research report stating that overall, after taking an important step in repairing the balance sheet through policy measures, the private sector's "deleveraging" has clearly slowed down, reflected in historically low early repayment rates among residents. Funds have been flowing towards the capital market with higher short-term investment returns, resulting in a significant increase in non-bank deposits. At the same time, margin trading volume as a proportion of A-share trading volume has reached historically high levels. With the help of incremental policies, the private sector's balance sheet has been effectively repaired, and it is expected to gradually improve. The expansive credit effects of policies have not yet been fully realized, and subsequent attention will focus on the stabilizing and rebounding elasticity of medium and long-term loans for residents and enterprises. In October 2024, the growth rate of social financing fell to 7.8% (down from 8.0% previously), with new social financing reaching 1.4 trillion yuan, a year-on-year increase of 448.3 billion yuan. October is a month with fewer loans issued, with local special bonds continuing to be a stable factor in social financing: In October, the issuance of local special bonds accelerated, with a net financing of 576.4 billion yuan for the month, accounting for over 98% of the annual total quota. According to the debt-for-equity swap plan announced by the National People's Congress, 2 trillion yuan of the new quota is immediately available for use. Additionally, due to the small scale of maturing national bonds in November, it is expected that net financing will exceed 800 billion yuan, meaning that government bond issuance will remain high in the fourth quarter. The private sector is still in the process of repairing its balance sheet, with the corporate sector continuing to "deleverage" while the household sector is beginning to expand credit on a trial basis. Corporate bill financing has declined compared to the same period last year, and the growth of short-term loans is in line with seasonal trends, indicating that the trend of early repayment by enterprises seen in September has continued. On the other hand, long-term loans have significantly decreased year-on-year, reflecting a weak willingness for credit expansion among enterprises. In contrast, households are starting to leverage more, as shown by the stability of short-term loans. October marks the peak season for car sales, coupled with online shopping festivals and policies promoting the exchange of old for new consumer goods, resulting in a significant increase in short-term loans for residents. Additionally, there is a renewed interest among residents in buying homes, as the year-on-year decline in residential property transactions in 30 large and medium-sized cities narrowed significantly in October. Future observations will focus on the growth elasticity of medium and long-term loans for residents. The M2 growth rate rose to 7.5% in October (up from 6.8% previously), while the M1 growth rate also increased to -6.1% (up from -7.4% previously), narrowing the gap between M1 and M2. The narrowing gap between M1 and M2 is a result of the effectiveness of a comprehensive set of incremental policies: On one hand, the government has intensified its efforts, with a net increase of 1.05 trillion yuan in government bond financing, while government deposits only increased by 595.2 billion yuan, a year-on-year decrease of 774.8 billion yuan. Government funds are supporting the deposits of residents and enterprises through project fund allocations and debt-to-equity repayment. On the other hand, the capital market is showing profit-making effects, with non-bank deposits continuing to grow. With the momentum of incremental policies, the gap between M1 and M2 will continue to narrow, but the key question is whether this trend can be sustained once the fiscal impulses diminish.