Event:
Since April, with the repeated epidemic in China, the narrowing of the interest rate gap between China and the United States, the continuous turmoil in Russia and Ukraine and other adverse factors at home and abroad, China’s capital market has fluctuated downward, showing weakness as a whole. On Wednesday and Thursday, the market rebounded again. Our comments are as follows.
Comments:
We believe that the following factors are behind the recent market shock: first, there has been a significant rebound in the epidemic in China, especially in Shanghai, the core city of the Yangtze River Delta region. The blockade, prevention and control and epidemic overflow have seriously affected the economic operation of Shanghai and surrounding cities, and the interruption of the supply chain has had a significant impact on the operation of the industrial chain and the livelihood security of residents. Secondly, the tightening of the Fed’s monetary policy is accelerating, and the expectation of raising interest rates has been strengthened, which has increased the volatility of the capital market. In addition, the external energy and food price inflation caused by the conflict between Russia and Ukraine has increased the external pressure and uncertainty of China’s economic development.
At present, the epidemic situation in Shanghai has peaked and dropped. We believe that the peak rate of the impact of the epidemic has probably passed. Although covid-19 confirmed cases occasionally occur in other provinces and cities across the country, drawing on the experience and lessons of Shanghai, all localities will be more fully prepared and have the ability to minimize the impact of the epidemic in China. After the national epidemic situation is further eased and the prevention and control measures are relaxed accordingly, economic activities will recover rapidly and the restriction of consumption on the economy will be lifted quickly. In order to alleviate the impact of the epidemic on the economy, the central government and the State Council have intensively deployed a series of positive policies and successively issued favorable policies in many aspects, such as stabilizing growth, ensuring people’s livelihood, financial support, logistics guarantee, tax preference, stabilizing real estate, system reform and so on
Overseas, the Fed’s expectation of raising interest rates by 50 basis points in May has risen to 96.5%. The interest rate increase is expected to be at a high level. It is expected that the interest rate meeting in May will be fulfilled as expected in the early stage. With the Fed gradually tightening liquidity, it is expected that inflation will peak and fall in the second half of the year, the US bond yield will gradually peak and fall with the reduction of tightening expectations, and the impact on China’s stock market will be gradually reduced. The Russian Ukrainian war has entered another stage. In the early stage, the panic and risk avoidance of global investors will be passivated to a certain extent, and the impact of the war on bulk commodities will gradually come to an end.
Now the market has entered the bottom grinding stage. The rebound on Wednesday and Thursday shows that investor sentiment has stabilized and confidence has recovered. At present, the bottom of the policy has arrived, but the bottom of the fundamentals still needs some time. With the introduction of economic policies and the emergence of the effect of epidemic control, investors’ risk appetite will be improved when the market expects economic activities to recover effectively. Although the current economic situation is grim, the economic bottom is expected to follow after the epidemic peaked. Investors should have firm confidence in the current market without being overly pessimistic. To sum up, we believe that the current market has entered the bottom grinding stage, and the overall opportunities of the market outweigh the risks in the medium and long term.
Risk tip: China’s policy implementation is less than expected: Overseas liquidity tightening is more than expected
