In view of the continuous warming of global risk aversion and the outflow of international funds from emerging markets, which led to the decline of A-Shares and Hong Kong shares. In the six trading days since March 7, the cumulative net outflow of northbound funds was 50.728 billion yuan, the largest continuous outflow record since March 2020.
On March 14, the Shanghai Composite Index fell 2.6% and the Hang Seng Index closed down 4.97%, the largest one-day decline since May 2020. The Hang Seng technology index closed down 11.03%, the largest closing decline in history.
Duan Yifan, a researcher of Morgan Stanley Huaxin Fund Research and management department, told reporters that the external conflict pushed up the oil price, the market’s concern about inflation intensified, the overseas market adjusted sharply, the A-share sentiment was also impacted, and the Hong Kong stock market was subject to the additional impact of China concept stock supervision. The continuous decline triggered negative feedback at the capital level, which accelerated the decline of the market. However, Goldman Sachs said that at present, the Chinese market is oversold and maintains the oversold MSCI China Index. The agency believes that the fair P / E ratio of MSCI China should be 12.5 times, rather than the current 9.9 times, which is the lowest in six years.
risk aversion caused capital outflow from emerging markets
Recently, commodities soared, US stocks plummeted and US bond yields fell sharply. The current market situation seems to be similar to the “formula” before the outbreak of the financial crisis in 2008.
“The military conflict continues, the medium and long-term impact of soaring commodity prices and the trend of economic and financial polarization have not been felt. The global central banks such as the United States and the European Central Bank have made it clear that monetary normalization is about to start, financial conditions are about to tighten, and the current threat to global economic growth is rising. In the face of high inflation, the central bank may have no choice.” Eric robertsen, chief global strategist at Standard Chartered, told reporters.
Traders are increasingly worried about the possibility that the Fed will continue to raise interest rates by 50bp on March 17. In addition, major Wall Street banks generally expect the Federal Reserve to raise interest rates six to seven times this year and announce the start of table reduction at the June meeting. It is expected that the monthly reduction caps of US Treasury bonds and MBS will be US $60 billion and US $40 billion respectively, which will reduce the balance sheet to the final equilibrium scale in 2 to 2.5 years.
In this context, although emerging market asset valuations are more attractive than developed market assets, Robertson said investors are withdrawing more capital from emerging markets.
\u3000\u3000 “At the beginning of 2022, the MSCI Emerging market index was 42% lower than the valuation of the S & P 500. At that time, a large number of investors increased asset allocation in emerging markets in order to seize the opportunity of asset revaluation in emerging markets. Therefore, the performance of emerging markets has been ahead of the S & P 500 in the first two months of this year. By the end of February, the MSCI Emerging market index was more than 8% ahead of the MSCI developed market index and 10.5% ahead of the S & P index. Now Now, this leading edge has evaporated, and the MSCI Emerging Markets Index returns its gains. ” He said.
“In the short term, investors will raise cash to cope with the expected redemption pressure. Therefore, investors may sell all their holdings in a hurry rather than selectively sell assets to recover their funds, which may lead to poor performance of high-quality or safe haven assets in emerging markets for a certain period of time.” Robertson said.
Matt Simpson, senior analyst of Jiasheng group, told reporters that the weekly trader position report showed that traders were abandoning the ruble, and the long position of gold was the highest in 13 months, and the net long position of silver and platinum futures was the highest in 11 months.
China’s asset valuation has reached a multi-year low
Risk aversion also led to the temporary outflow of international funds from China’s stock market.
Wu Zhaoyin, director of macro strategy of AVIC trust, told reporters that since the beginning of this year, due to the continuous decline of the stock market, the net value of bank financial products and some fixed income + products has declined. As of March 11, according to the statistics, one third of the bank financial products have had negative returns this year, which forced these products to reduce their equity positions, Last week’s sharp decline was driven by the reduction of absolute income products. If the stock index falls further, it will detonate the risk of snowball products.
Recently, there has been a continuous net outflow of funds from the north. According to datayes, as of March 14, the total net outflow of funds from the North has reached 27.747 billion yuan this year, compared with 86.1 billion yuan in the same period last year. However, many international investment banks and asset management institutions believe that the short-term market has been oversold, especially in the offshore market, and the valuation of the Chinese market has been attractive.
Goldman Sachs recently said that MSCI China‘s stock risk premium (ERP) was 9.5%, 0.9 standard deviation higher than the long-term average, close to or even higher than the peak during the outbreak of covid-19 pneumonia in early 2020, the trade war at the end of 2018 and the selling of A-share market in 2015. “The rise of ERP reflects the widespread concerns of investors, such as the spillover effect of geopolitical risks, the delisting risk of zhonggai shares, and the investability of Chinese assets.” However, Goldman Sachs also mentioned that based on good growth targets, loose policies, extremely low valuations and low investor positions, it still remains “over matched with the Chinese market”.
At present, Goldman Sachs has lowered the 12-month forward P / E ratio of MSCI China Index from 14.5 times to 12 times, but in terms of specific points, this still means that there is an upward potential of 27%. The sectors favored by the agency include themes supported by Chinese policies, such as new infrastructure and social equity, as well as some sectors whose valuations are at a deep discount.
In addition, unlike developed countries, Goldman Sachs believes that soaring oil prices will not bring significant upward risks to China’s inflation forecast. “Even if the oil price is $10 higher than the annual forecast (the agency’s previous forecast was $105 / barrel), it will only push up China’s CPI / PPI inflation rate by about 0.25 percentage points.”
Meanwhile, unlike 2015 and 2018, the current stability of the RMB exchange rate will also become a stabilizer of stock market sentiment.
Liu Jie, head of China macro strategy at Standard Chartered, told reporters that under the expectation of still strong balance of payments and economic recovery, the US dollar / RMB will remain at 6.3 ~ 6.4% this year “From January to February, China’s export growth (16.3% year-on-year) and trade surplus (US $116 billion) More than expected. In January, the deficit of service trade narrowed further, with a year-on-year decrease of 28% and a month-on-month decrease of 19%. It is unlikely to reopen the country before the end of the year, so the deficit may narrow further. The risk of a sharp and sustained outflow of capital remains limited. We expect that international funds will flow back in the coming months. “
The key is that the institution believes that strong policy support will help the subsequent stabilization of China’s stock market. Zhang Zhiwei, chief economist of Baoyin capital management company, told reporters that the stock market is too pessimistic, the fiscal policy is about to be launched, and the central transfer payment is relatively strong. “The government work report puts forward that this year’s economic growth target is 5.5%. This is the upper limit of market expectations. An important reason for the current lack of market confidence is that the path of steady growth is not clear, and some leading indicators in China, such as credit and fiscal expenditure, may turn marginal, and the PMI index has begun to rise slightly this month.”
additional upstream and high growth sectors
In terms of allocation, the current northbound funds still tend to be more defensive.
According to choice data, at present, in addition to allocating resource stocks that are favorable to the upstream price rise, northbound funds also overweight the pharmaceutical and other sectors that suffered a sharp decline last year, and some growth stocks with a sharp correction have also become the focus of additional allocation.
In the past five days, the sectors with the largest market value of northward capital holdings are: power supply equipment, precious metals, electric power, power transmission and transformation equipment, aerospace equipment, focus on construction, traditional Chinese medicine production, electronic devices, etc; The stocks with the highest increase in holding the highest share in turn are: Sungrow Power Supply Co.Ltd(300274) \ , Jiangsu Zhongtian Technology Co.Ltd(600522) etc.
It is not difficult to find that the new energy sector with the most uncertain performance this year and in line with China’s carbon neutrality orientation is still favored by foreign investors.
Su Xuejing, general manager of Qingli investment, told the first financial reporter that the new energy vehicle and photovoltaic industry chain are undoubtedly the most prosperous growth stock track in 2021. The upstream silicon and lithium resources, midstream battery chips / modules and lithium batteries have become the focus of institutional fund-raising. In 2022, the organization will focus on the downstream. “We are optimistic about the downstream new energy operators. In terms of power stations, we pay attention to both thermal power and pure green power operators. Green power needs thermal power to adjust the peak, so the combination of the two is actually the requirement of the industry. These targets are more in Hong Kong stocks, green power will open space for future growth, and the world needs green power in the future.”
In terms of upstream allocation, Morgan Stanley recently said that the surge in oil prices may continue until the first half of 2022. The consensus goal of Wall Street is $110 ~ 130 / barrel. If the flow is interrupted, it may reach $150 / barrel. Therefore, after investigating industry analysts in Greater China, Morgan Stanley listed the companies that benefited most from the upstream price rise in the covered stocks, including Xiaopeng automobile, CNOOC oilfield services, CNOOC, Yantai Jereh Oilfield Services Group Co.Ltd(002353) , Maiwei technology and Kunlun energy. Among them, Yantai Jereh Oilfield Services Group Co.Ltd(002353) also appeared in the top ten A-share companies with the largest increase in capital holdings in the north in recent 5 days.
