From the beginning of the year, the trend of China’s A shares has seen a sharp adjustment in the market before the Spring Festival holiday. The reason behind this is that the growth style of the high and low handover group has led to the collapse of the capital and the reduction of the warehouse position. In the course of the decline, the organization has formed a self feedback for the reasons of wind control, and some of the external and external events have intensified the passive action of reducing the capital. As a result, the market repeated the adjustment similar to that after the collapse of the “Mao index” after the Spring Festival in 2021. After the Spring Festival holiday, with the continuous introduction of steady growth policies and the fermentation of better than expected social finance and credit data, the market gradually stabilized and rebounded, but the structural differentiation was significant:
Shanghai Stock Exchange 50, represented by value blue chips, performed prominently, while the growth style oriented gem index continued to fall and hit a new low, indicating that institutional heavy positions are the main direction of avoiding the current market. In terms of capital, the differentiation is also obvious. The Shanghai Stock connect continues to have a net inflow, while the Shenzhen Stock connect shows a net outflow. In the short term, some investors are worried that the rising expectation of Fed tightening may bring negative disturbance to a shares. The author believes that there is no need to worry too much about this. If the RMB exchange rate remains stable and there is no significant outflow of funds going north due to tightening expectations, the oscillation center of the index is expected to rise further, and the adjustment is the opportunity to get on the bus.
Tightening expectations are heating up and pay attention to the evolution of US stocks
The U.S. market had a bad start in 2022: U.S. stocks continued to decline, the growth style was significantly corrected, and the U.S. bond interest rate (especially the real interest rate) rose rapidly. In the minutes of the December interest rate meeting released in the early morning of January 6, it was unexpectedly revealed that the discussion on the table contraction, the hawkish attitude of the interest rate meeting and the resulting market concern about the excessive tightening of the Federal Reserve were the main reasons for the sharp adjustment of US stocks in January. Since February, the Fed’s tightening expectations have increased unabated. First, the January non farm data released on February 4 exceeded market expectations, leading to a 10-year US bond yield of more than 1.9%. Secondly, the January inflation data released on February 10 again exceeded market expectations, making the rise of 10-year US bonds exceed 2%, the highest since July 2019, and the two-year US bonds jumped nearly 25bp to around 1.5%. On February 11, geopolitical concerns in Russia and Ukraine rose again, dampening market risk appetite, and US stocks continued to be under pressure. The ten-year US debt fell to 1.94%.
Affected by the inflation data exceeding expectations, the market has further strengthened the tightening rhythm of the Federal Reserve in the future. At present, the probability of 50bp interest rate increase in March implied by CME interest rate futures is 94%, indicating that the market has begun trading the expectation of 50bp interest rate increase by FOMC in March. The probability of the Fed maintaining the inflection point is higher than that of the current one. If the epidemic situation worsens again, resulting in lower than expected price decline or geopolitical tension pushing up commodity prices, the tightening rate may also exceed market expectations. It is worth noting that since the short-term interest rate is more affected by monetary policy, once the interest rate is increased too fast or by a large margin, it may lead to the flattening or even upside down of the yield curve, At that time, we need to pay attention to the response of the US stock market and whether the Federal Reserve has taken relevant measures (such as slowing down the pace and amplitude of interest rate hike, using the table contraction to push up the long-term interest rate, etc.) to avoid the above situation.
In the short term, before the interest rate meeting from March 15 to 16, the following events deserve investors’ attention: first, the minutes of the January interest rate meeting released on February 17, second, Powell’s semi annual congressional hearing in late February, third, the February non-agricultural data released on March 4, and fourth, the February inflation data released in mid March. If the above events lead to further warming of the Fed’s tightening expectations, it does not rule out the possibility that the US stock market will fall into adjustment again. In addition, investors should also pay attention to the potential negative impact of geopolitics and rising oil prices on the market.
A-share rebound is expected, and the main line returns to value
Since the beginning of 2022, the A-share market has been in a downturn. The adjustment range has increased and the sector has generally fallen in the week before the Spring Festival. The author believes that the main reason for the rapid decline of the market is that the centralized liquidity and reduction of capital caused by the disintegration of growth style make the market marginal liquidity pressure increase, and the organization form self feedback for the reasons of China’s wind control. As a result, the market repeated the adjustment similar to that after the collapse of the “Mao index” after the Spring Festival in 2021. Specifically, under the background of high valuation, crowded institutional positions and difficult to exceed the expected growth rate of fundamentals, the High-level Track stocks began to collapse in January, and the enhancement of steady growth signal further promoted the high-low switching of the market and the reduction of investors’ positions in growth stocks. At the same time, since the release of the minutes of the interest rate meeting in December, the Fed has continued to release hawkish statements, superimposed on the disturbance of geopolitical factors, and the world’s major stock indexes fell resonantly in January, putting pressure on market risk appetite. In China, steady growth has not yet seen a significant improvement, and the increased pressure on epidemic prevention and control in major cities has further exacerbated the cautious mood of investors. Although the policy side has repeatedly released the signal of stable growth, the economic downturn expectation brought by the loose policy is a fast variable, while the molecular end improvement brought by stable growth and the increase of allocation demand in the low interest rate environment are slow variables. From the actual trend, the market took the lead in reflecting concerns about the downward trend of economic fundamentals. This is somewhat similar to the sharp decline in the US stock market after the Federal Reserve reduced the base interest rate to 0 on March 16, 2020. Until March 23, the Federal Reserve announced the implementation of a series of stimulus policies, including the purchase of investment grade credit bonds and related ETFs, the US stock market gradually stabilized and rebounded. In the last week before the festival, due to the holiday effect, the willingness of funds to enter the market was insufficient. Under the influence of uncertain factors such as the Federal Reserve’s interest rate meeting and annual report performance forecast, the market liquidity pressure reached the peak. Under the pressure of centralized selling of Baotuan varieties, institutions form self feedback for risk control reasons. The rapid departure of short-term funds squeezed the market liquidity (especially small and medium-sized stocks) and led to the rapid withdrawal of funds, while the centralized closing of products exacerbated the market selling pressure, resulting in a large outflow of funds from northbound and an undifferentiated general decline in major indexes.
Looking forward to February, the author is cautiously optimistic about the A-share market. Affected by the fluctuation of US stocks and US bonds caused by the higher than expected rise of us CPI data in January, the short-term A-share index may oscillate, but the center will continue to rise after the oscillation. The main reasons are as follows: firstly, from the technical point of view, after the sharp decline in January, the main indexes have been fully adjusted and have a rebound basis. Secondly, from a fundamental point of view, although the expression of “focusing on me” is deleted in the fourth quarter monetary policy implementation report of the central bank, and it is emphasized not to engage in flood irrigation, the author believes that this may reflect that the central bank is making a psychological plan for the rise of overseas interest rates. From “strengthening cross cycle regulation”, “sufficient, accurate and forward force”, “guiding financial institutions to effectively expand loan lending”
And other statements, China’s current easing cycle is not over, and it is only a matter of time before China’s steady growth policy forms a joint force. Finally, from an overseas perspective, affected by the higher than expected CPI data in January, the market’s expectations for the Fed’s tightening, especially the rate hike in March, have further heated up. At present, the expectation of 50bp interest rate increase in March implied by CME interest rate futures has jumped to 94%. Affected by this, the short-term US stock market may still fluctuate. For a shares, as the tightening information of the overseas market is gradually digested, the impact of “internal loosening” before the two sessions is expected to be greater than “external tightening”. Under the expectation of China’s steady growth, the A-share market is expected to usher in a more favorable time window. In the short term, if the RMB exchange rate remains stable and there is no significant outflow of funds going north due to tightening expectations, the index level will continue to rise after the oscillation. In terms of market structure, the market structure after the Spring Festival in 2021 shows that after the institutions focus on cashing in the income of grouped varieties, there is a demand for the influx of undervalued varieties to avoid risks due to the limitation of positions. At present, although the manufacturing growth sector with a large increase last year has been adjusted, it is not the time to fully intervene. As for the large index represented by SSE 50, after adjustment in the past year, the valuation is more reasonable, supported by the expectation of steady growth, and the fundamentals are better than those of small and medium-sized indexes. In terms of operation, if the RMB exchange rate remains stable and there is no significant outflow of funds going north due to tightening expectations, multiple orders will continue to be held in the early stage, and positions can be increased every time. Pay attention to risk control. In terms of cross variety arbitrage, continue to pay attention to multi IH empty IC cross variety arbitrage and pay attention to risk control.
