In the first month after the Spring Festival of the year of the tiger, the A-share market became one of the safe havens for overseas funds when the global market encountered “Russian black swan”.
According to the data of China stock market news choice, as of February 25, the net inflow of northbound funds entering the A-share market through Shanghai Shenzhen Hong Kong stock connect reached 1.9 billion yuan in the current month. This is also the net inflow of funds going north for 17 consecutive months. According to wind data, the cumulative net inflow of funds going north in 2021 reached 432169 billion yuan, a new high of annual net inflow. In January this year, the net inflow also exceeded 10 billion yuan, reaching 16.773 billion yuan.
On the whole, although the scale of capital inflows to the North decreased in February, they continued to flow in under the turbulent market conditions. Analysts believe that there are certain fluctuations in the market after the festival. The geopolitical superposition of Russia and Ukraine and the expectation of the Federal Reserve to raise interest rates interfere with investor sentiment to some extent, but it is generally stable. Considering that the allocation of foreign capital to A-Shares is still low, it is expected that the trend of net inflow of foreign capital will continue.
plus cycle minus consumption
positions are relatively concentrated
In the highly volatile market conditions, the layout of northbound capital in A-Shares in February mainly focused on the cycle sector. In addition, it also showed the characteristics of frequent position adjustment.
According to wind data, in terms of primary industry allocation, foreign capital still prefers to allocate large consumption, electrical equipment and financial industries. In February, the food and beverage industry ranked first in the position of land stock connect Founder Securities Co.Ltd(601901) chief strategist Yan Xiang pointed out that large consumption and financial industry have always been the key areas of foreign investment, and electrical equipment has also become the focus of foreign investment due to the continuous implementation of new energy policies such as carbon peak and carbon neutralization.
The top three industries with the highest market value held by foreign capital are food and beverage (13.7%), electrical equipment (12.9%) and pharmaceutical biology (8.5%). Specifically, compared with the end of the previous quarter (the end of December 2021), the proportion of the market value of foreign capital holdings in banking, non-ferrous metals and light manufacturing industries in the market value of A-Shares in the industry increased most significantly in February.
From the perspective of positions in secondary industries, in February, foreign capital increased its holdings of more cyclical stocks through Shanghai Shenzhen Hong Kong stock connect, with the largest increase in banking stocks, followed by gold, coal mining, industrial metals and electrical automation equipment; Previously, the consumer sector with high heat became the hardest hit area of reducing holdings, of which the largest decline in the proportion of positions was beverage manufacturing, followed by power supply equipment, white appliances, computer applications and securities.
Specific to individual stocks, as of February 25, among the top 10 active stocks traded by Shanghai Shenzhen Hong Kong stock connect in that month, the largest number of stocks purchased by foreign investors was Zijin Mining Group Company Limited(601899) , with a net purchase amount of 4 billion yuan. Among the heavy foreign stocks, China Merchants Bank Co.Ltd(600036) continued to receive capital inflows, with a net purchase scale of 2.45 billion yuan Kweichow Moutai Co.Ltd(600519) was reduced by 2.95 billion yuan.
In addition, it is worth noting that although the industry and concentration of foreign A-share positions fell in February, they are still relatively concentrated on the whole. Founder strategy report pointed out that in February, the total proportion of the top five heavy warehouse industries of foreign investment still exceeded 50%, accounting for 50.6%.
Yan Xiang believes that the current overall valuation of A-Shares is still below the historical average level and still has a high investment cost performance. On the other hand, the allocation of foreign capital to A-Shares is still significantly low. Therefore, in the long run, there is still much room for sustained net inflow of foreign capital and will not change due to short-term fluctuations.
In February, under the dual influence of the external geopolitical turmoil and the Fed’s expectation of raising interest rates, the net inflow of foreign capital and A-share positions decreased, but the overall net inflow trend was still maintained. In terms of shareholding ratio, as of February 25, the value of the stock market held by foreign investors through the Shanghai Shenzhen Hong Kong stock connect was 2.46 trillion yuan, a slight decrease of 2.4 billion yuan month on month, accounting for 3.5% of the circulating market value of A-Shares and a slight decrease of 0.1% month on month.
Chen Li, chief economist of Chuancai securities and director of the Research Institute, said that China’s economy has long-term growth momentum and continues to attract large net inflows of northward funds.
Russia Ukraine conflict drives the theme of risk aversion to heat up
overseas funds may continue to flow into
In February, the situation in Russia and Ukraine took a sharp turn for the worse, driving a sharp rise in global market volatility and a sharp increase in risk aversion. The VIX Index soared from less than 20 at the beginning of the month to more than 30. Emerging markets, including a shares, have become one of the capital havens. EPFR data show that in the first three weeks of February, emerging markets recorded net inflows for three consecutive weeks, with a cumulative net inflow of US $11.7 billion.
During the same period, both active and passive overseas funds flowed into the A-share market, with an overall net inflow of US $4.84 billion. From the stock index performance, the A-share market in February was also more stable than that in January. In the 16 trading days in February, the Shanghai index rose for 12 days and the Shenzhen Component Index rose for 8 days.
Analysts pointed out that the influx of overseas funds, on the one hand, is the low correlation between the black swan incident and the Chinese market, on the other hand, Chinese companies are mainly based on local income and the relatively low proportion of foreign shares, so that A-Shares can provide better returns when geopolitical risks rise.
Recently, Goldman Sachs also said that China’s stock market still performs better during the fluctuation of geographical situation. However, the doubling of China Russia trade volume in the past five years and the increase of overseas investors’ participation in A-Shares will bring greater volatility to the market than ever before. However, on the whole, Goldman Sachs still recommends over allocation of a shares, and suggests paying attention to defensive growth stocks and themes that can hedge geopolitical risks, such as oil, gold, upstream metal stocks, defense sector, etc.
Standard Chartered wealth management believes that under the support of stable growth policy, moderate inflationary pressure and more supportive valuation, the prospect of Asian markets other than Japan continues to be clear, among which China’s stock market will lead the rise. It is expected that Asian stock markets other than Japan will outperform other major stock markets in the next 6-12 months. It is recommended to pay attention to China’s energy and financial industries.
At present, although the situation in Russia and Ukraine is still evolving rapidly and the final trend is still difficult to predict, institutions generally believe that although geopolitical risks will bring disturbance in the short term, they have limited medium-term impact on the trend of a shares.
CICC pointed out that the historical Shanghai outlying risk will affect China’s stock market in the short term, but the continuous impact in the medium term is limited. The uncertain impact in the medium term of the Russia Ukraine conflict mainly lies in that if the situation continues to escalate, it may aggravate the premium of resource supply and have an adverse impact on overseas inflation and monetary policy.
Guotai Junan Securities Co.Ltd(601211) believes that there is no need to be too pessimistic about the short-term weakness of the market. In March, with the emergence of positive factors, the market will gradually recover. It is suggested that investors can actively increase their positions. After continuous adjustment, the cost performance of track companies has gradually increased. On the other hand, under the warming expectation of steady growth, the allocation value of undervalued sectors such as consumption and infrastructure is also increasing.
Xiang Weida, chief economist of Great Wall Fund, believes that investors need not be too pessimistic about the current market shock. In the future, they can pay close attention to the annual reports and first quarterly reports of A-share listed companies to find companies with poor expectations. Although the situation in Russia and Ukraine is uncertain for the time being, investors need to pay attention to two major events in March. One is that the two sessions are about to be held, and the other is that the Fed’s interest rate hike is about to be implemented. As the market’s expectation of steady growth is about to reach a climax and close to the end, the relevant sectors may have the risk of rising and falling in the short term.
Huo Huaming, fund manager of GF CSI military ETF, believes that the tension between Russia and Ukraine reflects the more complex international relations after the epidemic. Perhaps the tension between Russia and Ukraine is not just a pulse event, but may be an epitome of global change. The performance of the military industry sector is still the decisive factor in the allocation value of the sector. From the performance forecast, the performance of most military enterprises is still good. With the deep correction of the military industry sector since this year, the configuration value of the sector deserves attention.
