Northbound capital, known as "smart money", has always been regarded by many investors as an investment weathervane, and securities analysts call it "the most determined incremental capital in the A-share market".

Since this year, northbound funds have massively allocated more than 400 billion a shares, breaking the net purchase record of 350 billion yuan in 2019, a new high since the opening of the Shanghai Stock connect. Especially from December 6 to 12, the net purchase in a single week was 48.834 billion yuan, a new high of net purchase in a single week this year.

From the perspective of the industries with increased positions of funds from the north this year, power equipment, electronics and big finance are highly valued, especially power equipment, which has been net purchased by the north in more than 120 billion yuan during the year. However, the style change is a significant trend in the near future. In particular, the value sector, including food and beverage, non bank finance and banking, has significantly increased its position in the north after entering the fourth quarter.

It is worth mentioning that from November 15 to December 19, northbound funds showed net buying for six consecutive weeks, but this trend ended on December 17. On that day, northbound funds sold more than 6.5 billion yuan, and sold 1.221 billion yuan in the following week. That night, the CSRC issued new regulations, focusing on the strict supervision of "fake foreign capital", which inevitably aroused market speculation about the correlation between the two.

However, a number of brokerage analysts said that from the comprehensive multi-dimensional data, the scale of "fake foreign capital" is limited, and the change of capital flow in the North mainly reflects the impact of trading sentiment. In addition, brokers also believe that northbound funds are "changing their taste". Compared with the growth sector, value sectors such as food and beverage, non bank finance and banking are more popular in the near future.

In addition, brokers pointed out that, in fact, it is not desirable to take "smart money" as an absolute signal. Historical data also show that it is difficult to capture timely information about the investment direction from the short-term buying and selling of foreign capital. "If you always take foreign capital as the wind vane, you will be very busy."

northbound funds bought a record 410 billion

According to the statistics of xingkuang, as of December 24, the net purchase of northbound funds during the year had reached 417.738 billion yuan, of which the net purchase of Shanghai Stock connect was 187.964 billion yuan and the net inflow of Shenzhen Stock connect was 229.774 billion yuan. From the perspective of the overall inflow scale of northbound funds during the year, it has exceeded the net purchase amount of RMB 351.743 billion in 2019, reaching a new high since the opening of the Shanghai Stock connect in 2014.

From November 15 to December 19, northbound funds showed net buying for six consecutive weeks, of which the net inflow in a single week from December 6 to 12 reached 48.834 billion yuan, setting a record of net buying in a single week this year.

However, this trend failed to continue last week. According to the statistics of xingkuang, from December 20 to 26, the net sales of northbound funds were 1.221 billion yuan, of which the net purchase of Shanghai Stock connect was 1.12 billion yuan and the net sales of Shenzhen Stock connect was 2.341 billion yuan.

From the perspective of the position increase plate, the power equipment industry is favored by "smart money" this year. As of December 24, the north capital has increased its position by 122.966 billion yuan, accounting for nearly 8 percentage points of the total market value of the industry compared with the same period last year, which is the largest increase in all plates.

During the year, the sectors with more than 30 billion yuan of capital increase from the north also included electronics, banking and non bank finance. Among them, the non bank sector received a net purchase of RMB 15.5 billion from the north in December, accounting for the proportion of the total market value of the industry, with a month on month increase of 0.54 percentage points.

At the same time, food and beverage, real estate, national defense and military industry were the sectors with the most net sales of northward funds during the year. Among them, the cumulative net sales of food and beverage during the year was 12.75 billion yuan. However, it is worth mentioning that in the fourth quarter of this year, the food and beverage sector received more than 20 billion yuan of northward capital, which was the largest sector in the fourth quarter.

Since the opening of the interconnection mechanism in November 2014, the subject matter and quota have been expanded for many times, and the North transaction volume has maintained a sustained and rapid growth. According to the statistics of xingkuang, as of December 24, the average daily transaction amount (ADT) of northbound funds during the year increased by 32% year-on-year to 120.5 billion yuan (bilateral).

after the crackdown on "fake foreign investment", what is the market impact?

On December 17, the net inflow of northbound funds ended for 12 consecutive days, with a net sale of RMB 6.561 billion on that day. That night, the CSRC issued the

<内地与香港股票市场交易互联互通机制若干规定>

The draft for comments (hereinafter referred to as the "Shanghai Shenzhen Hong Kong stock connect" new regulations) focuses on the strict supervision of "fake foreign capital".

This also makes the market begin to guess whether the sudden "flight" of northbound funds is related to the introduction of the new regulations of "Shanghai Shenzhen Hong Kong stock connect". What is the proportion of "fake foreign capital"?

Sinolink Securities Co.Ltd(600109) according to the analysis, first of all, it is difficult to distinguish between real foreign investment and fake foreign investment. According to the CSRC, mainland investors account for about 1% of the northbound transactions, of which the statistical caliber is mainland residents and legal institutions registered in the mainland. In fact, many mainland institutions register and set up channel companies abroad to enter the A-share market through channel companies. The main reason for bypassing Hong Kong and entering the A-share market from the north channel is that the capital interest rate in Hong Kong is low and the cost of leverage is low.

Sinolink Securities Co.Ltd(600109) said that it is certain that fake foreign capital with leverage attribute flows more frequently, including some quantitative funds. However, in recent years, these funds have not been the main force for the sustained and stable inflow of foreign capital into the A-share market.

Sinolink Securities Co.Ltd(600109) according to the grassroots research and analysis, the foreign capital invested in pension and other long-term investments basically adopts the strategy of batch and gradual inflow to allocate a shares. In terms of investment strategy, the proportion of long-term held assets in the scale is about 80%, and the proportion of flexible trading assets in the scale is about 20%.

China Industrial Securities Co.Ltd(601377) it is mentioned in the report that through the custodian institution disclosed by the Hong Kong stock exchange, the northbound funds can be divided into foreign banks (allocation plate), foreign securities companies (trading plate) and Chinese institutions (which may contain "fake foreign capital"). Among the three types of funds, banks or securities companies entrusted with Chinese capital (domestic capital, Hong Kong and Taiwan) and funds with higher transaction frequency are more likely to include "fake foreign capital".

However, according to the data as of December 17, the market values of the above three types of funds were 2.16 trillion, 484.7 billion and 97.1 billion respectively, accounting for 78.8%, 17.66% and 3.54% of all northbound funds. More importantly, the proportion of funds entrusted to Chinese funded institutions that are considered likely to contain "fake foreign capital" has been stable within 5% in recent years, and not all of them are "fake foreign capital".

Therefore, the market generally believes that the scale of "fake foreign capital" is small, and more impact may be reflected in the impact on trading sentiment.

northbound funds are "changing"

Although the disturbance of "fake foreign capital" is limited, the signal of "change of taste" of northward funds is very obvious, and its preference has changed significantly in the near future.

From the net inflow in the week from December 6 to 10, the cumulative inflow of consumption was 17.76 billion yuan and the net inflow of steady growth sector was 14.26 billion yuan, accounting for 36.4% and 29.2% of the total inflow respectively.

In this regard, Everbright Securities Company Limited(601788) believes that this data is in sharp contrast to the previous northward capital flow - previously, northward capital had a significant preference for the growth sector, and its proportion of capital inflow ranked first among all sectors, while the inflow of consumption sector was relatively small.

Soochow Securities Co.Ltd(601555) also mentioned that the style of northward capital has changed recently, especially the significant purchase of value sectors including food and beverage, non bank finance and banks.

However, Everbright Securities Company Limited(601788) said that the main reason for this favorable change was the "shift" of policy, and said that it was "not unexpected". Everbright Securities Company Limited(601788) according to the analysis, with the recent reduction of the reserve requirement by the central bank and the convening of the central economic work conference, the expectation of policy efforts to maintain the stability of the economy began to fall. During the period of policy efforts, funds going north are also more likely to flow into the consumption and steady growth sectors.

"smart money" is smart enough?

So, does the shift of "smart money" release a new signal?

Zhongtai Securities Co.Ltd(600918) said that observing the net buying and selling of northbound funds in the first half of the year, it is actually difficult to capture timely information on the investment direction from the short-term buying and selling of foreign capital. "The largest buy in one range is also the largest sell in another range, and the direction may be changing all the time. If you always take foreign capital as the wind vane, you will be very busy."

At the same time, Zhongtai Securities Co.Ltd(600918) also pointed out that in fact, there are many short-term speculators in northward funds.

Judging from the trading data, on the trading days of this year when the CSI 300 index fell by more than 1 percentage point in a single day, there were almost large outflows of funds from the north, such as June 15, July 2, July 14, etc; On the contrary, there are large net purchases on almost every soaring trading day, such as May 25, June 25, July 15, etc. "in other words, similar to the self mockery of Chinese investors, there are also many position reversers in northbound funds."

Secondly, from the perspective of lengthening the time axis, although twists and turns occur from time to time, the continuous inflow of foreign capital is still a trend direction. Sinolink Securities Co.Ltd(600109) said that the long-term trend of foreign capital flowing into A-Shares will not change. In recent years, foreign capital is the most determined incremental capital in the A-share market.

Sinolink Securities Co.Ltd(600109) said that although the issuance scale of public funds has repeatedly reached new highs in recent years, in fact, the scale of net capital inflow is not particularly high and historically unstable. For example, there will be more than 1 trillion new development funds in 2020, but the phenomenon of "redeeming the old and buying the new" is more obvious. The annual net subscription and redemption scale is only 440 billion. As for foreign capital, since this year (as of December 17), the scale of foreign capital flowing into the A-share market only through the northward channel has reached nearly 420 billion yuan. As the A-share market continues to open to the outside world, the trend of long-term sustained inflow of foreign capital will not change.

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(Financial Associated Press)