crashbashnintendoswitch| Great Wall Strategy: Capital Return to the North and Foreign Investment Preference for A-Shares Allocation

Source: total amount of the Great Wall

Abstract

Weekly topic: what is the direction and sustainability of northward capital increase in the near future?

Since 2024, as of May 10, the cumulative net inflow of northbound capital has exceeded 79 billion yuan, with a net inflow of 32.9 billion yuan in the last three weeks, while the cumulative net inflow of northward capital for the whole of 2023 is only 43.7 billion yuan. At present, the scale of A-share incremental funds is still relatively limited, and the obvious warming of northward funds has gradually become an important factor affecting the marginal change of market style.

Judging from the northward movement of funds in the past three weeks, the leading "core assets" of big consumption, big finance, new energy and other sectors have gained more positions, and the subsequent stock market style may be more biased towards the relative dominance of "core assets", thus promoting the overall repair of A-share valuation.

Compared with the position changes of public offering funds and northward funds in 2024, both increased their positions in upstream, mid-stream and other pro-cyclical industries, while reduced some of the growth industries represented by AI. Due to the different disclosure frequency and update time between public offering funds and northbound funds, northward funds have significantly increased their positions in food and beverage, pharmaceutical biology, large finance and other industries, but the changes in public fund positions have not been fully reflected. The convergence of industry preferences of public funds and northbound funds to some extent reflects the repair of domestic and foreign confidence in China's stock market and macro-economy.

Look back.CrashbashnintendoswitchWe believe that the valuation repair of A-shares is not over yet, and northbound funds are expected to continue to maintain a steady net inflow throughout the year. The policy tone is more aggressive real estate destocking further intensified, the domestic economic repair may speed up. At present, the performance-price ratio of stock and debt is at an all-time high level. The follow-up of stock market micro-liquidity is expected to further improve, northbound, public offering and other incremental funds are expected to layout, which is conducive to the market interpretation of core assets.

One-week market view: internal and external positive factors accumulate, dividends and pro-cyclical still have deductive space.

The fact that aggregate monetary growth is likely to slow does not mean that financial support for the real economy is reduced. The financial data fell back in April, and the growth rate of social integration stock dropped to 8. 8%.CrashbashnintendoswitchThe year-on-year growth rate of .3% M _ 2 fell further to 7.2%. M _ 1 fell to-1.4% M _ 2my M _ 1 "scissors difference" further widened. Among them, there are factors such as the relatively slow issuance of government bonds since the beginning of the year and the fact that the real estate chain has not yet stabilized; there are also factors of strict supervision, such as strengthening the regulation of manual interest payment by banks, and curbing idle arbitrage; at the same time, there are factors such as the shift of bank deposits to financial management and the optimization of value-added accounting in the financial industry. Zhu Hexin, deputy governor of the people's Bank of China and director of the State Administration of Foreign Exchange, said: "the current huge monetary growth may slow, but this does not mean that there is less financial support for the real economy." efficient enterprises that really need capital will get more financing, "and the central bank may think more about structure in the future. The next stage of fiscal and real estate efforts may lead to a rebound in the growth rate of social finance.

At present, A-shares may still be in the repair window of risk appetite. After the meeting of the Politburo in April, the policy tone is more aggressive, the policy of stabilizing growth may continue to work, real estate destocking will be further intensified, and domestic economic repair may accelerate. The global manufacturing boom and the gradual opening of the replenishment cycle will help exports maintain a relatively high economy. Overseas, the US non-farm data was lower than expected, FOMC said it was partial to the pigeon, and the expectation of interest rate cut has been strengthened. Since late April, domestic medium-and long-end interest rates have rebounded, the M2-M1 scissors gap is still at a high level, and the performance-to-price ratio of stocks and bonds is at an all-time high level. Northbound funds have seen significant net inflows since the end of April, and micro-liquidity in the stock market is expected to further improve in the future.

Related industry recommendations:

(1) dividend sector: after the arrival of the "New Nine articles" and related supporting policies, the market has further increased its attention to dividends. Focus on sustained and stable dividends, increased buybacks and holdings, and investment opportunities with expectations of mergers and acquisitions.

(2) cycle: the stable growth policy is expected to be further strengthened, and the real estate chain and cyclical industry are expected to improve. Focus on real estate, chemical, construction machinery and other industries.

(3) going out to sea: expanding overseas markets may be a feasible way to absorb domestic production capacity and increase corporate profits and residents' income. Medium-and long-term investment opportunities for going abroad include automobiles, home appliances, innovative drugs, cross-border e-commerce and so on.

(4) Science and technology: it is suggested to pay attention to the key landing direction of the relevant policies of "new quality productivity". The direction of artificial intelligence represented by AI has the long-term certainty of industrial change, and its performance is expected to be realized gradually in the future. The gradual landing of AI applications may still bring opportunities for plate valuations to improve. It is recommended to pay attention to the domestic gpu computing power, as well as the overseas AI application. The performance of the pharmaceutical sector is expected to pick up gradually, and there are opportunities related to going out to sea in part of the subdivision direction.

Risk hints: risk stock market risk, technical index failure risk, geographical situation affecting risk preference, lower predictability of historical data to the future, bond market risk, foreign exchange market risk, financial futures fluctuation risk, commodity futures fluctuation risk, policy landing is less than expected risk and so on.

Weekly discussion topic: how about the direction and sustainability of northward capital increase in the near future

1.1 the recent substantial increase in northbound funds as "core assets"

Since February this year, the market risk appetite has obviously warmed up, and northward capital has seen a clear net inflow as A-shares stabilized. Since mid-late April, the tone of domestic policy has been more aggressive, the restrictions on real estate purchase in many important cities have been further liberalized, and the policy of stabilizing growth may continue to be implemented. Against this background, A-share risk appetite has further boosted. Since late April, there has been a large net inflow of northbound funds, with a daily net inflow of 22.4 billion yuan on April 26, setting a record high for one-day net inflows.

Since 2024, as of May 10, the cumulative net inflow of northbound capital has exceeded 79 billion yuan, with a net inflow of 32.9 billion yuan in the last three weeks, while the cumulative net inflow of northward capital for the whole of 2023 is only 43.7 billion yuan. At present, the scale of A-share incremental funds is still relatively limited, and the obvious warming of northward funds has gradually become an important factor affecting the marginal change of market style.

Judging from the northward movement of funds in the past three weeks, the leading "core assets" of big consumption, big finance, new energy and other sectors have gained more positions, and the subsequent stock market style may be more biased towards the relative dominance of "core assets". And then promote the overall repair of A-share valuation.

From the perspective of the industry, in the past three weeks, most industries have received northward capital to increase their positions, and only the media, iron and steel, and computers have reduced their positions; the first-tier industries with a cumulative increase of more than 9 billion yuan are medicine and biology, food and beverage, banking, power equipment, non-bank finance, electronics, household appliances, and so on, mainly concentrated in large consumption, big finance, new energy and other sectors.

From the perspective of individual stocks, the stocks with the largest net inflow in the past three weeks are Guizhou Moutai, China Merchants Bank, Ningde era, Lixun Precision, Mairui Medical, Ping an of China, Haier Zhijia, Bank of Communications, Sany heavy Industry and other "core assets". The stocks with the largest net outflow are Guodian Nanrui, focus Media, Midea, Daqin Railway, Weichai Power and so on.

1.2 changes in industry preference for northbound funds

On the whole, northward capital prefers large consumer plate, big financial plate, new energy, electronics and other industries, especially the leading core target. Since 2024 (as of 2024.5.10), northbound funds have obviously increased their positions in food and beverage, non-ferrous metals, chemical industry, power equipment, public utilities, architectural decoration, banking and other industries. Foreign investors attach importance to pro-cyclical industries, while the early stage of warehouse reduction is highly related to AI.

Upstream industry: in the medium to long term, the proportion of northward capital in the upstream resources industry continues to rise. In 2024, the proportion of non-ferrous metals industry increased significantly compared with the end of 2023, while the proportion of coal, petroleum and petrochemical decreased slightly.

Mid-stream industry: in terms of the mid-stream cycle, the proportion of chemical and other industries continues to increase steadily, while the proportion of iron and steel, building materials and other industries has continued to decline since 2020. In terms of mid-stream manufacturing, light industrial manufacturing, electrical equipment, machinery and equipment, national defense and other industries have continued to decline since 2021, but the share of these industries has rebounded in 2024, especially in power equipment related to new energy. In terms of public utilities and infrastructure, the proportion of public utilities, building decoration, environmental protection and other industries has been increasing since 2020, while the proportion of transportation has continued to decline since 2019, but rebounded in 2024.

Downstream industries: in terms of required consumption, the proportion of food and beverage, trade and retail, medicine and biology, agriculture, forestry, animal husbandry and fishing has declined to varying degrees since 2020. Since 2024, the share of food and beverage, agriculture, forestry, animal husbandry and fishing has rebounded, while the share of commerce and retail has declined further. In terms of optional consumption, the proportion of household appliances and social services has continued to decline since 2019, but the share of household appliances has rebounded significantly in 2024. The proportion of beauty care, automobile, textile and clothing has increased steadily in the medium and long term.

TMT: the electronic share continues to rise, especially since 2022. The media continued to rise in the medium and long term, but declined significantly in 2024. The share of computers has been declining since 2021. The share of communications has continued to rise since 2022.

Big finance: after 2021, the proportion of real estate, banking and non-bank financial industries declined obviously, and the proportion of big finance rebounded in 2024, of which the proportion of banks increased most obviously this year.

1.3 the change of industry preference of public offering funds and its comparison with northward funds

(1) the change of industry preference of public offering funds: 24Q1 reduction has high growth and bets are pro-cyclical.

According to our previous report, "position continues to be stable-Analysis of heavy stocks in the Fund's Quarterly report", active equity funds made more layouts for the upstream and mid-stream industries in the first quarter of this year.

In the upstream industry, the allocation proportion of non-ferrous metals rose sharply by about 2 percentage points in the first quarter, the allocation proportion of coal increased slightly, and the allocation proportion of petrochemical industry decreased slightly. In the medium and long term, the overall allocation ratio of the upstream industry is still in the rising cycle since 19Q1.

In the mid-stream industry, the share of power equipment has rebounded by about 1.6 percentage points for the first time since the 22Q2 high of 20.41% fell for six consecutive quarters, and the current share has halved from the high. Machinery and equipment has continued its continuous increase since 22Q2, and the share of positions in the latest quarter has risen to 3.89%. The share of the transportation industry has rebounded after the reduction in 2023, and the current share of positions has increased by 0.45 percentage points compared with the previous quarter; the share of the public utilities sector has increased slightly, and the share of positions in the latest quarter has increased to 2.28%, an increase of 0.47 percentage points over the previous quarter.

In the downstream industry, the share of social services positions has fallen sharply, to 0.49%, which is already at an all-time low since the 18Q1. The proportion of medical biological positions decreased significantly, and the proportion of medical organisms decreased to 11.71%.

In TMT, the share of computer and media positions has declined to a large extent, the communications industry continues to rise by relying on the development of 5G-An and the chip industry, while the electronics industry has declined slightly compared with the previous quarter.

In the large financial sector, the share of bank and non-bank positions shows signs of stabilizing after a sharp decline since 2018, but the share of non-bank positions fell again in the latest quarter; the real estate sector continues to decline due to some long-term problems.

(2) the industry preference of public offering funds and northbound funds has changed and converged since 2024.

On the whole, in 2024, public funds and northbound funds have increased their positions in upstream, mid-stream and other pro-cyclical industries, while reduced some of the growth industries represented by AI. Due to the different disclosure frequency and update time between public offering funds and northbound funds, northward funds have significantly increased their positions in food and beverage, pharmaceutical biology, large finance and other industries, but the changes in public fund positions have not been fully reflected. The convergence of industry preferences of public funds and northbound funds to some extent reflects the repair of domestic and foreign confidence in China's stock market and macro-economy. However, longer-term, larger capital holdings still need to see the emergence of fundamental inflection points, especially whether the real estate-related data can stabilize.

1.4 what is the sustainability of northbound capital inflows?

From now on, we believe that the valuation repair of A shares is not over yet, and northbound funds are expected to continue to maintain a steady net inflow pace throughout the year. The policy tone is more aggressive real estate destocking further intensified, the domestic economic repair may speed up. The global manufacturing boom and the gradual opening of the replenishment cycle will help exports maintain a relatively high economy. Overseas, the US non-farm data was lower than expected, FOMC said it was partial to the pigeon, and the expectation of interest rate cut has been strengthened. Since late April, domestic medium-and long-end interest rates have rebounded, the M2-M1 scissors gap is still at a high level, and the performance-to-price ratio of stocks and bonds is at an all-time high level. The follow-up of stock market micro-liquidity is expected to further improve, northbound, public offering and other incremental funds are expected to layout, which is conducive to the market interpretation of core assets.

(1) Finance relies on forward development, and the tone of the policy of stabilizing growth is more proactive.

The Politburo meeting stressed that fiscal policy should rely on the front, make good use of ultra-long-term special treasury bonds, and speed up the issuance and use of special bonds. In terms of real estate, it is proposed for the first time to "digest the stock of real estate and optimize incremental housing", setting a more positive tone, with more emphasis on the implementation of guaranteed housing. In terms of expanding domestic demand, large-scale equipment renewal and trade-in of consumer goods are still the focus. For new quality productive forces, we should actively develop venture capital and strengthen patient capital.

(2) restrictions on the purchase of real estate in many cities have been further relaxed, and the process of destocking has been further accelerated.

At present, the inventory-to-sales ratio of real estate is already at a historically high level, and the follow-up inventory and incremental policies are expected to go hand in hand. It is expected that the process of real estate destocking will be further accelerated and the real estate sales side may be improved. Recently, the real estate policies of some key cities have been further relaxed.

(3) after the "New Nine articles", the landing of supporting policies for the stock market is expected to speed up and enhance its attractiveness to foreign investment.

The "1x N" policy system is gradually taking shape, and the follow-up rules on IPO, delisting, dividend sharing and standardized reduction of holdings will continue to be optimized, and high-quality companies will be more recognized by the market. The capital market ecology will further shift to high-quality development and enhance the long-term return of investors.

(4) non-farmers in the United States fell short of expectations, FOMC said that it was partial to pigeons, and the expectation of interest rate cut increased.

Us non-farm payrolls were lower than expected in April, and the Federal Reserve took a lopsided attitude at the FOMC meeting, saying it would slow the contraction from June. Some European countries have begun to cut interest rates, and expectations of overseas liquidity easing will help A-share valuations to be further repaired.

One-week market view: internal and external positive factors accumulate, the stock market rebound may not be over yet

Exports remain high, and the repair of endogenous power in the domestic economy needs to be further improved. Domestically, there are structural bright spots in the economy, but the momentum is still weak, and the policy of stabilizing growth is expected to further improve. In April, the manufacturing PMI index was 50.4%, which has been in the expansion range for two consecutive months; the April new orders index was 51.1%, down 1.9% from the previous month, still in the expansion range; and the new export orders index was 50.6%, down 0.7% from the previous month, continuing to expand, indicating that the overall export business of enterprises continued to improve. In April, China's exports were 1.5% year-on-year, with a previous value of-7.5%; imports were 8.4% year-on-year, with a previous value of-1.9%; regardless of seasonal factors, the import and export data were moderately upwards. On the whole, the manufacturing industry continues to repair, the export boom is relatively strong, the pulling effect of external demand is more obvious, and the repair of economic endogenous power needs to be further improved.

The fact that aggregate monetary growth is likely to slow does not mean that financial support for the real economy is reduced. The financial data fell back in April, and the growth rate of social finance stock dropped to 8.3%. The year-on-year growth rate of M2 fell further to 7.2%, and the year-on-year growth rate of M1 fell to-1.4%. The "scissors difference" of M2my M1 further widened. Among them, there are factors such as the relatively slow issuance of government bonds since the beginning of the year and the fact that the real estate chain has not yet stabilized; there are also factors of strict supervision, such as strengthening the regulation of manual interest payment by banks, and curbing idle arbitrage; at the same time, there are factors such as the shift of bank deposits to financial management and the optimization of value-added accounting in the financial industry. Zhu Hexin, deputy governor of the people's Bank of China and director of the State Administration of Foreign Exchange, said on April 18 that "the current huge monetary growth may slow down, but this does not mean that financial support for the real economy will be reduced. Efficient enterprises that really need capital will get more financing," and the central bank may think more about structure and efficiency in the future. The next stage of fiscal and real estate efforts may lead to a rebound in the growth rate of social finance.

The more aggressive policy of stabilizing growth will help the stock market to continue to boost risk appetite. The Politburo meeting stressed that fiscal policy should rely on the front, make good use of ultra-long-term special treasury bonds, and speed up the issuance and use of special bonds. In terms of real estate, it is proposed for the first time to "digest the stock of real estate and optimize incremental housing", setting a more positive tone, with more emphasis on the implementation of guaranteed housing. At present, the inventory-to-sales ratio of real estate is already at a historically high level, and the follow-up inventory and incremental policies are expected to go hand in hand. It is expected that the process of real estate destocking will be further accelerated and the real estate sales side may be improved. Recently, the real estate policies of some key cities have been further relaxed. In terms of the capital market, the landing of supporting policies for the stock market after the "New Nine articles" is expected to speed up, the "1th N" policy system is gradually taking shape, and the follow-up rules in IPO, delisting, dividend sharing, and standardized reduction of holdings will continue to be optimized, and high-quality companies will be more recognized by the market. The capital market ecology will further shift to high-quality development and enhance the long-term return of investors.

The United States non-farm less than expected, FOMC position partial pigeon, interest rate cut is expected to strengthen. In April, the US added 175000 non-farm payrolls, the unemployment rate rose slightly to 3.9 per cent, and the average hourly wage rose 0.2 per cent month-on-month and 3.9 per cent year-on-year, both below market expectations, reflecting signs of a possible decline in inflation. The Fed said at its May FOMC meeting that the timing of the rate cut depends on the data, but that the next step is unlikely to be a rate hike; it also said it would slow the decline in its securities holdings by lowering the monthly redemption ceiling for US Treasuries from $60 billion to $25 billion from June; the FOMC is committed to restoring inflation to its 2 per cent target. Higher expectations of interest rate cuts in the US have helped to further repair risk appetite and valuations in the stock market.

Industry viewpoint of the week: there is still room for deduction of dividends and pro-cyclicality.

At present, A-shares may still be in the repair window of risk appetite. After the meeting of the Politburo in April, the policy tone is more aggressive, the policy of stabilizing growth may continue to work, real estate destocking will be further intensified, and domestic economic repair may accelerate. The global manufacturing boom and the gradual opening of the replenishment cycle will help exports maintain a relatively high economy. Overseas, the US non-farm data was lower than expected, FOMC said it was partial to the pigeon, and the expectation of interest rate cut has been strengthened. Since late April, domestic medium-and long-end interest rates have rebounded, the M2-M1 scissors gap is still high, and the performance-to-price ratio of stocks and bonds is at an all-time high level. Northbound funds have seen significant net inflows since the end of April, and micro-liquidity in the stock market is expected to further improve in the future. Under the support of policy expectations and marginal incremental funds, there is still room for deduction of dividends and pro-cyclical.

Related industry recommendations:

(1) dividend sector: after the arrival of the "New Nine articles" and related supporting policies, the market has further increased its attention to dividends. Focus on sustained and stable dividends, increased buybacks and holdings, and investment opportunities with expectations of mergers and acquisitions.

(2) cycle: the stable growth policy is expected to be further strengthened, and the real estate chain and cyclical industry are expected to improve. Focus on real estate, chemical, construction machinery and other industries.

(3) going out to sea: expanding overseas markets may be a feasible way to absorb domestic production capacity and increase corporate profits and residents' income. Medium-and long-term investment opportunities for going abroad include automobiles, home appliances, innovative drugs, cross-border e-commerce and so on.

(4) Science and technology: it is suggested to pay attention to the key landing direction of the relevant policies of "new quality productivity". The direction of artificial intelligence represented by AI has the long-term certainty of industrial change, and its performance is expected to be realized gradually in the future. The gradual landing of AI applications may still bring opportunities for plate valuations to improve. It is recommended to pay attention to the domestic gpu computing power, as well as the overseas AI application. The performance of the pharmaceutical sector is expected to pick up gradually, and there are opportunities related to going out to sea in part of the subdivision direction.

Quantitative sentiment index: the performance-to-price ratio of stocks and bonds fell back to near double the standard deviation

Taking all A shares listed for more than 60 trading days as the sample pool to construct the proportion index of strong stocks, we can see the rapid rise in the proportion of strong stocks last week. As of 5.10, strong stocks accounted for 61.86%.

We use several important risk factors to attribute market performance that week. The specific method is to divide the stock into 10 groups according to the factor value of the previous week, and observe the performance of the average return of the top 10% stock and the last 10% stock. On the whole, the factor with obvious advantage last week is the dividend yield factor.

In the aspect of performance-to-price ratio of stock and debt, we use the ratio of EP and 10-year treasury bond yield of Wandequan A, Shanghai and Shenzhen 300,500 to construct stock-debt performance-price ratio index respectively. On the whole, the current stock-to-debt performance-to-price ratios of the three stock indexes are all near double the standard deviation, and the quantiles of the three stock-debt performance-to-price ratios are all above 90%.

Important market data

Risk hint

Stock market risk, technical index failure risk, geographical situation affecting risk preference, lower predictability of historical data to the future, bond market risk, foreign exchange market risk, financial futures fluctuation risk, commodity futures fluctuation risk, policy landing is less than expected risk and so on.