Core view:
There were several positive signals in the market this week: externally, the Fed’s interest rate hike “landed on the ground”. The speeches of Russian Foreign Minister Sergei Lavrov and Ukrainian President Zelensky all released the negotiation signal, and the conflict situation was gradually becoming brighter. On the evening of the 18th, Chinese and American leaders talked about China US relations and the situation in Ukraine, dispelling the concerns of overseas investors about the tension between China and the United States. Internally, the meeting of the Finance Committee of the State Council gave a positive response to the major concerns of the market in the near future, such as macro-economy, real estate, zhonggai shares, platform economy and the stability of Hong Kong’s financial market, which further consolidated the policy foundation.
Recently, the capital inflow of Hong Kong stocks and A-Shares is mainly contributed by mainland investors, and the northward capital still maintains a net outflow trend. On Thursday, after the meeting of the Finance Committee of the State Council made a positive response to a number of issues, market sentiment gradually improved, and funds going north turned into net inflows. We believe that there are three main reasons for the recent sharp withdrawal of foreign capital:
First, the spillover effect of the US stock market on the A-share market. US stocks fell and risk appetite decreased → capital outflow northward → A shares fell. From the perspective of global asset allocation, as an important trading channel for foreign investment in China’s Shanghai and Shenzhen stock markets, its net outflow will be affected by the US stock market as a “global wind vane”.
Second, the Fed’s interest rate hike led to the return of emerging market funds to the United States. The Fed’s interest rate hike will usually lead to the rise of US bond interest rates, forming a pumping effect on emerging markets. The Fed’s withdrawal from quantitative easing is essentially the tightening of US dollar liquidity. Therefore, it will inevitably affect the global financial markets in the short term. Coupled with the tightening of US dollar liquidity brought by geopolitical risks to the world, investors have withdrawn their funds from emerging markets.
Third, a series of impacts brought by the conflict between Russia and Ukraine have impacted the Chinese market. On the one hand, the surge in bulk commodities has exacerbated the inflationary pressure overseas, causing international investors to worry about China’s efforts to implement loose policies to stimulate the economy in the face of imported inflationary pressure. On the other hand, the conflict between Russia and Ukraine has greatly changed the global geopolitical pattern. China’s attitude in the Russian Ukrainian war made international investors worry about China US relations.
The decline of US stocks, the increase of interest rates by the Federal Reserve and the conflict between Russia and Ukraine are all factors affecting a shares. What affects the medium and long-term trend of A-Shares is still the policy strength of “stable growth” of China’s economy. China’s “policy bottom” has been clear and the mood bottom has passed. Combined with the continuous introduction of follow-up favorable market policies and the disclosure of favorable annual reports and first quarter reports, the market is forming a wave of rebound market, but the follow-up does not rule out the repetition of short-term market after rapid rebound.
The trend of A-Shares mainly depends on China’s fundamentals, expectations and capital. Judging from the current situation, the fundamentals of real estate and consumer sectors will still be at the bottom stage in the short term, but will recover in the future; Investment opportunities such as new infrastructure, old infrastructure, manufacturing, undervalued and high dividends deserve attention. It is suggested to pay attention to investment opportunities in relevant sectors. In addition, investors can participate in the rebound based on medium and long-term fundamental logic, based on growth and patiently layout, including high-profile growth stocks such as semiconductor, photovoltaic and digital economy.
