Since the beginning of the year, the structural differentiation of A-share capital has become more and more intense, and the pattern of “foreign capital entering and domestic capital retreating” has continued to highlight, causing index fluctuations and style switching.
In the view of market participants, “external disturbance” is one of the reasons for the recent differences in capital. In the face of the external market fluctuation under the background of the rise of risk-free interest rate, foreign capital chooses to firmly flow into the A-share market with more stable expectation; Domestic funds are worried about the transmission risk of the peripheral stock market and choose to conduct risk aversion before the Spring Festival holiday.
In the past few years, the phenomenon of “foreign investment into domestic investment back” has occurred many times. In the short term, the larger domestic capital position adjustment will indeed cause fluctuations in the market and individual stocks, as well as the rapid switching of market style; However, in the medium and long term, the mature investment concept of foreign capital has made it successful in “bottom reading” for many times, and the overall flow direction has strong foresight.
significant differences in the flow of domestic and foreign capital
Since the beginning of this year, there has been a significant differentiation of funds in the A-share market. The overall performance is that the northward funds continue to flow in a large amount, while the financing funds and domestic institutions leave the market to avoid risks. From the perspective of overall scale, northbound funds have shown a net inflow in 12 of the 15 trading days since the beginning of the year, and the cumulative net purchase amount has reached 46.299 billion yuan. As a reference, the annual net purchase amount of northbound funds in 2021 hit a record high, with an average monthly net purchase amount of 36.014 billion yuan.
Domestic capital continued to flow out. Since the beginning of the year, the financing balance of Shanghai and Shenzhen stock markets has declined unilaterally, with a cumulative decline of 35.549 billion yuan; Since this year, the issuance of equity funds has been flat, and the power of incremental funds to enter the market is insufficient. In addition, according to institutional estimates, the A-share position of the stock active partial stock fund has also fallen since last week.
From the perspective of capital flow, foreign capital has mainly increased its positions in finance and new energy in the near future. Since the beginning of the year, China Merchants Bank Co.Ltd(600036) , Ping An Insurance (Group) Company Of China Ltd(601318) , Ping An Bank Co.Ltd(000001) , the number of northbound capital holdings has increased by more than 6%; The number of northbound capital holdings in the same period of Nari Technology Co.Ltd(600406) , Yunnan Energy New Material Co.Ltd(002812) , Sungrow Power Supply Co.Ltd(300274) increased by more than 7%.
The above two directions of foreign capital position increase are the objects of domestic capital selling. According to the data of the exchange, China Merchants Bank Co.Ltd(600036) and Ping An Insurance (Group) Company Of China Ltd(601318) have been net sold by financing since the beginning of the year. The net sales of financing of new energy targets such as Longi Green Energy Technology Co.Ltd(601012) , Tianqi Lithium Corporation(002466) , Qinghai Salt Lake Industry Co.Ltd(000792) also exceeded 500 million yuan. Whether it is the overall trend or the specific flow direction, the recent flow direction of domestic capital and foreign capital shows a completely opposite trend.
external market fluctuation is the main reason?
The current round of foreign capital stepping up the allocation of A-share assets may be related to the dislocation of the pace of the Chinese and foreign economic cycle caused by the epidemic.
According to the latest report released by the China International Capital Corporation Limited(601995) fixed income team, taking 2020 as the starting point, the pace of China’s economic cycle is significantly faster than that of other major economies, and the response to inflation is also earlier than that of other major economies.
Citic Securities Company Limited(600030) also believes that overseas liquidity expectations continue to be suppressed under inflationary pressure. The recent sharp rise in US bond yields has brought negative resonance to the global equity market. However, the recent sustained and rapid inflow of northbound funds shows that this round of overseas stock market adjustment has no obvious negative impact on the capital flow of a shares.
According to Citic Securities Company Limited(600030) , the recent increase in foreign capital’s preference for RMB assets stems from China’s market environment of “low inflation + prudent monetary policy + reasonable equity valuation” in 2022, which is better than the combination of “high inflation + tight monetary policy + high equity valuation” in European and American developed markets, as well as most emerging economies with high inflation and weak growth.
the foresight of foreign investment should not be ignored
Since the large-scale inflow of northbound funds in 2017, the phenomenon of “foreign capital entering and domestic capital returning” has occurred many times. Typical cases include:
On the first trading day after the Spring Festival holiday in 2020, the A-share market suffered a severe setback due to the outbreak of the epidemic, and many institutional and individual investors left in panic. However, on the same day, northbound funds bought 18.189 billion yuan in net on a large scale, and the huge difference between domestic and foreign investment ideas was incisively and vividly demonstrated.
In hindsight, the Shanghai composite index made up the huge gap caused by the outbreak of the epidemic in half a month, and the accurate bottom reading of foreign capital naturally made a lot of profits. Since then, the name of “smart money” of northbound funds has been increasingly recognized by investors.
In February 2021, affected by the mutual restraint of short-term overvalued value and long-term high prospect gas, domestic capital and foreign capital also had opposite operations in the new energy sector, Tianjin Zhonghuan Semiconductor Co.Ltd(002129) , Wuhu Token Sciences Co.Ltd(300088) and many other new energy stocks had the situation of “foreign capital buying and domestic capital selling”.
Looking back, the withdrawal of domestic capital did cause short-term stock price fluctuations of relevant sectors and individual stocks at that time. However, boosted by industry data that continued to exceed expectations, the new energy sector rebounded again in mid-2021, and relevant stocks reached a new high.
In July 2019, Zhang Xia, chief strategist of China Merchants Securities Co.Ltd(600999) once wrote an article entitled “what signals are released by the deviation between Shanghai and Shenzhen Stock connect and financing funds?” The report said that under the constraints of short-term and high cost, most financiers pursue right-hand investment and obtain excess returns through short-term arbitrage. In contrast, northbound funds belong to medium and long-term funds, and prefer to choose the left layout when the market is undervalued.
“In contrast, foreign capital takes a longer-term view. Against the background of rising uncertainties in the global capital market this year, stable assets are expected to become scarce, and the global competitiveness of A-Shares is further improved.” Said the chief analyst of a securities firm.
