The Federal Reserve is about to raise interest rates, and the Central Bank of China will cut interest rates; The sharp contrast between buying funds from the north and selling funds from the mainland has triggered heated discussion in the market since last week. Does this mean that the market bottoms out and stabilizes? How do domestic and foreign institutions view the prospect of China's stock market?
In the past week, A-Shares have experienced a sharp retreat. The Shanghai composite index was once close to falling below the 3500 point mark. The main force in the mainland showed a net outflow of funds for several days. The issuance of public funds in the first two weeks of the new year was also weak, and there was redemption of old funds; However, the total net inflow of northbound funds into A-Shares in the past week was 29.197 billion yuan. On January 24, the net inflow was 3.452 billion yuan again, and the total net purchase in January was 46.298 billion yuan.
The investment managers of domestic and foreign-funded institutions interviewed by reporters generally believe that by the second quarter, the shock and consolidation of the Chinese market may continue, and foreign-funded institutions are indeed more optimistic, mainly because of different perspectives on the market.
Meng Ning, director of China equities of lubemaker, a large international asset management institution, told the first financial reporter, "Different from the tightening trend of overseas central banks, China is currently in the stage of policy easing, so the valuation expansion may still support a shares; in addition, foreign capital is more in the attitude of asset allocation, A-Shares are a part of the portfolio, and public funds are generally 'opposite returns', the main goal is to outperform the benchmark index, which is the pressure to obtain positive returns in a single month It will not be as large as private placement in the mainland, so it has greater patience for positions and lower turnover rate. " In his opinion, referring to the experience of similar economic downturns such as 2018, with a period of policy transmission, the market is expected to be supported.
international capital over allocation of A-Shares and Hong Kong shares
China's stock market ushered in 2022 with a correction, superimposed with the downward pressure of the economy in the first quarter, which made investors more worried about the subsequent market trend. Over the past month, the gem retreated by more than 7%, the CSI 300 fell by 2.7%, and the CSI 500 fell by 4.04%. On the day of the central bank's interest rate cut last week, more than 3600 A-shares still fell, and mainland funds watched carefully. Foreign capital in China's stock market from the perspective of international market comparison generally holds the attitude of over allocation of A-Shares and Hong Kong shares in 2022.
At the beginning of the new year, Goldman Sachs reiterated its view of being bullish on China's stock market. As early as last November, the report released by Goldman Sachs mentioned that China's offshore stock market was upgraded from standard allocation (from equal weight to standard allocation in July) to over weight again, and the judgment of A-Shares remained over allocation. It is expected that MSCI China and CSI 300 index will have a return of 30% and 13%.
Goldman's attitude can actually represent most international investment banks and foreign capital management institutions. One reason is that the valuation of China's stock market is attractive from the perspective of international comparison. The current 12-month forward P / E ratios of MSCI China Index and CSI 300 index are 11.6 times and 14.3 times respectively. Relative to their historical levels in the past five years, the valuations are in the quantile of 5% and 67% respectively. In contrast, when the valuation peaked 11 months ago, the P / E ratio was 18.6 times and 17.1 times respectively. MSCI China's share price also has a large discount compared with global stocks (33% lower than msciacwi). Among them, the share price of offshore China Technology (Internet) is 27% lower than that of American technology stocks, which is the largest gap in recent years.
Coincidentally, Wang Qian, chief economist of the Asia Pacific Regional Investment Strategy and research division, told reporters that many low profit growth stocks in the United States have already had bubbles, and the probability of callbacks is very large, especially in the environment of increasing interest rates and shrinking tables. "Due to the overall high valuation of US stocks, we are not optimistic about its long-term average annual return, which is only 3%. In contrast, we expect China's A-Shares to have an average annual return of 6.5%."
In addition, foreign capital still looks at China's stock market from the perspective of allocation, "the pressure of short-term performance evaluation will not be as large as some private placement in the mainland, and the holding cycle is long. Therefore, when the valuation callback to a certain position, foreign capital will buy against the trend, even if the short-term market may not rebound so soon." The stock investment manager of an international asset management institution told reporters. Excluding the ADR market, domestic A shares account for nearly 80% of the total market value of the shares of other Chinese companies, while the proportion of A-Shares held by foreign capital is only 4.5%. In the future, the foreign capital will probably be allocated to the Chinese market.
The key is that the economic and policy cycles of China and the United States run counter to each other, and international funds are more optimistic about the potential of valuation expansion of China's stock market. On January 17, China's MLF (medium-term lending facility) unexpectedly lowered 10bp (basis points); On the 20th, the one-year LPR was lowered by 10bp simultaneously with the MLF. Meanwhile, the five-year LPR linked to housing loans also ushered in a long-awaited reduction of 5bp in the past 21 months. Most institutions expect that China is still expected to offer further easing policies before the Federal Reserve officially raises interest rates in March.
Goldman Sachs believes that under the slowdown of profit growth, China's stock market can still achieve good performance, especially after the sharp correction of the stock market and the stock market cycle enters the "Hope" stage. At this time, the expansion of P / E ratio may promote the strong rise of the stock market.
Supporting factors include that after each major correction hit the bottom, the MSCI China Index often has a good return on subsequent transactions (an average increase of 30% in 12 months); If 2016 is excluded (MSCI China index still fell by 1.6% after a 10% correction in 2015), MSCI China Index has never experienced negative annual returns for two consecutive years since 2002; The cycle of China's stock market may be transitioning from "despair" to "Hope", at which valuation expansion usually overshadows weak fundamentals and drives the stock market up strongly.
At present, the A-share and Hong Kong stock markets are generally allocated by foreign capital for different reasons. Goldman Sachs believes that A-share is an asset class with large scale, strong liquidity and continuous growth, but insufficient allocation by international investors, with rich opportunities for excess returns; The sharp decline of H shares provides an attractive tactical upward opportunity. "The Internet sector accounts for 40% of the MSCI China Index. The basic outlook is still uncertain, but the overall valuation is low and the position is very light. If our expectations of loose policy and slowing regulatory cycle come true, the risk return ratio will be remarkable." The agency said.
Lubomai has also started to configure the Internet industry since the end of last year, Meng Ning told reporters, "Short term policy adjustments may lead to performance setbacks, but after a year or two of rectification, the Internet industry will still return to a new development path. In fact, in addition to regulatory factors, the decline in advertising revenue caused by the economic downturn is also a key factor in the decline in Internet performance. At present, the valuation of nearly 20 times of some giants is beginning to show the value of allocation."
domestic capital position adjustment and wait-and-see policy transmission
In contrast, its A-share position is more cautious for higher domestic capital. A shares have fallen from a high of nearly 3700 points since the fourth quarter of last year. At present, the Shanghai composite index is approaching the 3500 point mark, and there is a strong wait-and-see mood. Investors are generally concerned about the follow-up transmission of policies, as well as economic and profit changes.
The reason why the immediate response of the market is not obvious after the implementation of the loose policy, Wu Zhaoyin, director of macro strategy of AVIC trust, told reporters that the reason is that the loose money has not yet entered the real economy, so it can only idle in the money market, superimposed with the central bank's reduction of MLF interest rate, resulting in the continuous decline of China's bond yield.
However, from the perspective of various capital channels of the stock market, such as public funds and quantitative private placement, the inflow of incremental funds is obviously insufficient. Monetary easing on the macro level can not bring incremental funds to the stock market, and the stock market falls instead of rising.
Compared with the stock market, the commodity market is another logic. Wu Zhaoyin said: "At present, the main contracts of black rebar, power coal and iron ore are all may contracts, and investors have strong expectations for the economic rise in the next second quarter, so the contract price in May rises significantly. Even if the economic rise in the second quarter does not meet expectations, it will not be verified until the second quarter. At present, it is still an upward expectation stage. This is the trend of the bond market, stock market and commodity market Under the current environment of loose money and weak economy, different logic leads to different trends. These three different logics may continue for some time, that is, stocks will fall, but the probability of strong bonds and commodities will continue in February. "
In December last year, the correction of the new energy sector significantly hit the market sentiment, which was also due to overvaluation and institutional position adjustment. Meng Ning told reporters, "Compared with worries about rising costs and policy changes, in fact, the logic of the decline is mainly that the previous valuation was too high. If the original judgment was that the compound annual growth rate was 30%, then the valuation of 40 times was considered reasonable, while the previous surge to 50 ~ 60 times was obviously too high. With the industry's penetration rate rapidly reaching 20%, the prospect of slowdown in growth may be faced, the industry can bring more benefits "A chance to fall out," rather than continuing to catch up. " By contrast, the more reasonable food and beverage, leading Baijiu and quality bank shares were increased.
Institutions still generally believe that it is necessary to be highly vigilant against the sharp correction of US stocks caused by high inflation in 2022. With the accelerated implementation of China's steady growth policy, we can continue to wait and see the favorable space for future policies. Morgan Stanley Huaxin Fund told reporters that the profit growth rate of China's stock market may be under pressure due to the base, but there are many positive factors in the policy side. There is room for both fiscal policy and monetary policy, and the valuation of the equity market will be strongly supported.
