A "Moderately Accommodative" Monetary Policy in CN；Rate Cut Bets Have Risen【CSOP Fixed Income Weekly】

– SRT’s fall was primarily due to industrial and office REIT by subsectors as well as MINT, FLT and CLINT. CLINT fell after Temasek sold its shares.

– Last week, headline CPI and the core CPI both increased by 0.3% MoM in November, slightly below JPM's prediction. The core basket had unexpected variations, with owner's equivalent rent and tenant's rent lower than anticipated, while hotel prices surged beyond expectations.

– This has slightly shifted the odds in favor of Fed cutting rates at the December meeting despite sturdy core CPI might still cause concern that disinflation has stalled.

– We expect CSOPUMM to continue to deliver stable yield in the near term. As of 20241213, the fund has net yield at 4.54%. ^

Source: CSOP, JPM and Bloomberg as of 20241213. ^ 7-day net yield is calculated based on calendar days and NAVs in 5-decimal

– YTD as of 20241212, the CYC/CYB rose +6.77% in CNY and gained +4.26% in USD*.

*CYC/CYB/CYX USD NAV is converted based on benchmark FX, subject to rounding error

– Dec 9 Politburo meeting: New policy rhetoric includes "extraordinary" countercyclical measures, a "moderately accommodative" monetary policy stance, "more proactive" fiscal policy, "actively" promoting consumption, stabilizing "housing, property and stock markets", "revitalizing market expectations", "comprehensively" expanding domestic demand, and managing risks associated with "external shocks".

– US 60% across-the-board tariffs are expected to reduce China's 2025 economic growth by 2%-2.5%

– The actual impact is expected to be mild due to a shift in exports to emerging markets, orderly depreciation of the RMB due to tariff increases, and macro support measures boosting consumption, non-property investment and broad market sentiment; tail risks to economic growth and Chinese credit have been reduced.

– CGB intermediate maturities continue to be favored due to the low correlation between China's onshore central government bonds (after FX hedging) and US Treasuries, and the good rolling yields from FX forward hedging.

– China's 10-year bond yield fell below 0.5% in early December. 2%, and Treasury yields continue to fall as the People's Bank of China increases liquidity easing, including Treasury bond purchases and reverse repo operations.

– There is room for further rebound in Chinese interest-bearing bonds because: (1) China's real interest rates are still high; (2) policy rates and bank reserve requirements are expected to be lowered in the next 6 months to ease trade uncertainties; and (3) the People's Bank of China will maintain ample interbank liquidity.

– Industrial REITs (Positive): Sector is seeing increased rents and occupancy rates, and with lower costs, rental reversions should improve earnings. As interest rates fall, these REITs, with their diversified portfolios and focus on high-performing markets, are anticipated to actively acquire and rejuvenate portfolios for further earnings growth.

– Office REITs (Neutral): Despite market slowdown concerns, the sector remains robust with steady occupancy and rising rental rates in Singapore, especially for Grade A offices in CBD. With easing cost pressures and improving conditions in Australia, lower interest rates could further alleviate balance sheet and valuation pressures.

– Retail REITs (Neutral): Sector is backed by strong fundamentals, with limited supply supporting near-full occupancy across SREIT malls. As pandemic-period rents end, high-single-digit positive reversions are expected for both suburban and central leases, with tenant sales remaining strong. FCT and LREIT are particularly promising, despite potential outflows for FCT in 2H25 with RTS completion.

– Hospitality REITs (Negative): Sector is experiencing limited organic growth due to a high operating climate and increased supply, despite recovering tourist arrivals, particularly from China. However, shorter stays and downtrading by Chinese tourists may offset this, leading to modest 0-3% RevPAR growth, mainly driven by occupancy rather than rates.

– The market now predicts a softening of headline CPI inflation to 2.58% in 2025, close to JPM's forecast.