The Russian Ukrainian war intensified risk aversion: with the outbreak of the Russian Ukrainian war on February 24, 2022, the market fluctuated violently. We compared the impact of the war on the stock market before and after the war in history, and found that: 1) there was an obvious downward trend before and after the war; 2) One to three months after the war broke out, the stock index was higher than that in the early stage of the war for most of the time in history. So investors need not panic too much about it.
The bottom signal has emerged: China’s stock market has continued to decline since its peak in February 2021. However, we found that the bottom signal of China’s stock market has emerged: 1) our exclusive leading indicator of China’s fundamentals shows that China’s economy is close to the bottom; 2) Credit pulse, as a leading indicator, has bottomed out and rebounded; 3) The net upward revision momentum of earnings expectations fell, indicating that earnings expectations bottomed out and rebounded, providing fundamental support for the stock market; 4) Our exclusive China equity asset net Optimism Index gives a buy signal.
The bottom may be reached in March: the bottom signal appears, and we believe that March is likely to lead to the bottom of the market: 1) at the beginning of March, China’s two sessions are held, and more measures to stabilize growth are expected. At the same time, the regulatory measures for the Internet may be further implemented, which will help alleviate investors’ concerns about policies; 2) Under the expectation of strong interest rate increase reflected by the market, the Fed’s interest rate increase boots will land in mid March. If the market falls after the interest rate increase, you can firmly buy.
Downside risk: we believe that the downside risk of Chinese stocks is limited as a whole: 1) the Fed’s table contraction: compared with previous years, the Fed’s policy toolbox is richer in this round of table contraction, and compared with 2018-2019, the current table contraction environment is extremely abundant market funds, which will have limited practical impact; 2) Downward space of Valuation: we calculated with reference to the rare 2018, and the downward space of valuation is limited; 3) Pullback downside space: through the calculation of valuation pullback, MSCI China may have less than 10% space for further pullback.
Operation strategy: Based on the above, the market bottom signal appears, the market may hit the bottom in March, and the downside risk is generally controllable. Our suggested operation strategies are as follows: do not buy gold, do not chase up bulk commodities and buy Chinese stocks.
