GuShiio.com ① Currently in the spring agitation window, external disturbances are expected to be limited before April, domestic economic and policy expectations are expected to improve, and the market style is expected to tilt towards A-share core assets.
② The marginal capital structure of the market has changed. DeepSeek has changed the narrative of China’s assets. The rise of Hong Kong stocks has triggered expectations of a return of foreign capital. Domestic active capital positions are high, and there is a need for rebalancing.
③ In the process of making up for the increase in core assets of A-shares, lithium batteries and innovative drugs can focus on.
Summary:
It is still in the spring agitation window. It is expected that external disturbances will be limited before April, domestic economic and policy expectations will improve to a certain extent, and the market’s marginal capital structure is changing. Many factors indicate that the market style is expected to tilt towards the core assets of A-shares. First of all, from a macro perspective, it is expected that friction between China and the United States in the fields of science and technology, trade, and finance will be limited before April, the domestic economy will recover steadily, policy expectations will gradually be realized, and it will still be in the spring agitation window. Secondly, from the perspective of market funds, DeepSeek has changed the narrative of China’s assets. At the same time, the continued rise in Hong Kong stocks has triggered a rise in expectations of foreign capital return. While domestic active capital positions have reached a high level, institutions with extreme position holding styles also need to rebalance. Finally, judging from the popularity and location of the sector, the sentiment indicators of the technology and theme-related sectors are at high levels. After Hong Kong stocks quickly repaired their valuation, the core assets of A-shares have become a phased depression. In terms of configuration, during the process of making up for core assets, lithium batteries and innovative drugs can focus on.
It is still in the spring agitation window until April, with limited external disturbance
It is expected that the United States will mainly focus on domestic issues in the United States and “non-China” countries before April, and most of them will be “thunderous and heavy.” Trump recently announced “reciprocal tariffs” to replace the “universal tariffs” he proposed during the election campaign. This shows that the United States has always been testing and bargaining with other countries other than China and has not taken it seriously. Trump also recently had a phone call with Russian President Vladimir Putin. This conversation means that the United States will speed up its efforts in the short term to deal with other geopolitical risks that may distract its efforts, and this is also in order to have more energy to focus on Asia-Pacific issues in the future. Overall, we maintain our previous judgment that before April, the focus of the United States will still be on its domestic and “non-China” countries, and there will be a process of communication and testing with China. The high probability is also a very limited testing. After April, the uncertainty of U.S. policy towards China will increase significantly. But because of this, the time window before April is safer, and short-term external disturbances are relatively controllable, providing a basis for spring agitation (especially for Hong Kong stocks).
Domestic economic and policy expectations have improved to some extent, and the market is still in the spring agitation window
In January, social finance achieved a year-on-year growth of 8.0% based on a high base. Government bond issuance and forward lending are the two main supports. Real estate data also remained resilient overall, and the recent continued credit endorsements by state-owned shareholders behind Vanke also boosted confidence to a certain extent; as of February 14, the closing net prices of the three bonds 21 Vanke 06, 22 Vanke 07, and 23 Vanke 01 were 76%, 75% and 55% respectively compared with January 17. The 2024 New Year’s Policy Report released by the central bank on February 13 was significantly more positive in judging economic operations than in the third quarter, pointing out that “indicators such as production, demand, prices, income, and expectations have shown positive changes.” In addition, the cargo policy report also pointed out that “according to the domestic and foreign economic and financial situation and financial market operation, we will choose opportunities to adjust and optimize policy intensity and rhythm.” We believe this implies that the central bank is currently maintaining a positive judgment on economic resilience and there will be no more signal of policy stimulus for the time being. The National Ordinary Session on February 10 pointed out that “we must effectively change concepts and put boosting consumption in a more prominent position”, which also raised the market’s expectations for clear consumption stimulus in some service areas during the two sessions. Overall, macro factors have improved moderately and their impact on the market has weakened in the short term.
The market marginal capital structure is changing
1) DeepSeek changed the narrative of China’s assets, and the continued rise in Hong Kong stocks triggered a rise in expectations for the return of foreign capital.This week, foreign investment showed signs of returning assets to China. Based on Refinitiv’s overseas fund flow database, we use active and passive funds tracking MSCI China, the Asia-Pacific region, and emerging markets as samples to observe the inflow trend of foreign capital. Data shows that as of the week ended January 22, 2025, sample funds (active + passive) tracking China overseas have experienced net outflows for 13 consecutive weeks, but then there have been signs of returning China assets. The net inflows in the past three weeks (January 29, February 5, and February 12) were US$20 million,-020 million and US$770 million respectively. The main return funds come from passive funds, which have seen net inflows for three consecutive weeks, reaching US$240 million, US$200 million and US$850 million respectively. In addition, the recent continued rise in Hong Kong stocks has also raised expectations for subsequent foreign investment to continue to flow into China assets.
2) Domestic active capital positions are already at high levels, and institutions with extreme position holding styles also need to rebalance.A survey of CITIC Securities channels shows that the position levels of active private placement in the sample in the past three weeks (the weeks of January 17, January 24, and February 7) are 80.3%, 80.1%, and 81.7% respectively. In the recent 9 weeks, 7 of the 7 weeks have been in a state of marginal addition, close to the April 2023 high. The financing balance also rebounded in the short term, and was generally close to the high on December 16 last year. The “rush to raise” indicator we have built has risen rapidly after the Spring Festival holiday and is currently at 90% since 2021. The proportion of transactions on the Dragon and Tiger List has also continued to rise since the Spring Festival. Active public offerings have generally outperformed the benchmark this year. As of February 14, the average yield of active public offerings reached 4.0%, outperforming the CSI 800 Index by 2.9 percentage points. The yield of products in the top 10% of the quarries within the year reached 9.9%, outperforming the CSI 800 Index by 8.9 percentage points. Although we have seen some institutional products gain performance flexibility, traffic and attention through extreme offensive positions, in order to seek a breakthrough under the rise of ETFs and asset management fee reductions, no matter the current development stage of the asset management industry, regulatory guidance or public opinion do not support the entire industry to return to a traffic model similar to 2013 – 2015 or a betting “track” model from 2019 – 2021. Controlling net value fluctuations may become an important consideration in the implementation of the “Implementation Plan on Promoting Medium and Long-term Funds into the Market”. Therefore, we believe that as the hot theme reaches its peak in the turbulent spring market, subsequent institutional funds will also need to rebalance positions to reduce volatility.
The style is expected to tilt towards the core assets of A-shares
1) Relevant sentiment indicators in the technology and theme sectors are at historical highs.The A-share TMT sector accounted for 45% of the total A-share transactions in the most recent week, at the historical 99%. Among them, the computer industry accounted for 100% in history, and the media and electronics accounted for 95.6% and 92.4% of the total. In terms of Hong Kong stocks, the cumulative weekly turnover of Hang Seng Technology’s constituent stocks in the past three weeks accounted for 50.3%, 49.0%, and 51.6% of all Hong Kong stocks respectively, which is at the quantile level of 98.6%, 97.4%, and 98.7% since 2020. The logic of revaluation of the price of China’s technology assets is equally obvious in Hong Kong stocks. Currently, the components of the Hang Seng Index account for almost half of the turnover of all Hong Kong stocks. In contrast to the technology sector, the transaction congestion of A-shares and Hong Kong stock dividend varieties has recently dropped significantly. The trading share of stocks in the Hang Seng High Dividend Yield Index in all Hong Kong stocks has been 11.6% and 11.8% respectively in the past two weeks, which is at the quantile levels of 52.3% and 55.6% since 2020. The proportion of transactions in the A-share dividend index in all A-shares in the past two weeks was 1.4% and 1.2% respectively. The latest reading for the week of February 14 is at the extremely low quantile level of 0.8% since 2014 and 1.8% since 2019.
2) After Hong Kong stocks quickly repaired their valuation, the core assets of A-shares became a phased depression.Since the fourth quarter of 2024, the cumulative yields of the Hang Seng Index, Hang Seng Technology,”Mao Index” and “Ning Combination” have been 7.0%, 16.3%,-3.4% and-3.0% respectively, with obvious differences in trends. However, the above trend divergence mainly occurred this year. In the fourth quarter of 2024, the trends of the above four indices are all relatively sluggish, with cumulative yields of returns in a single quarter being-5.1%,-6.0%,-6.4% and-8.1% respectively, and the trend differentiation is not obvious; Since entering 2025, Hong Kong stocks have continued to rebound. As of February 14, the cumulative yields of the above four indices were 12.8%, 23.7%, 3.2% and 5.6%, respectively. The trend is clearly divided, and the core assets of A-shares are significantly weaker. From a valuation perspective, Hang Seng Technology’s current PE is 25 times, which is at the quantile level of 30.4% in the past five years; the PE of the “Ning Combination” is 31 times, which is at the quantile level of 31.6% in the past five years. Its valuation quantile level is relatively close to that of Hang Seng Technology; the PE of the “Mao Index” is 19 times, which is at the quantile level of 12.9% in the past five years; and the PE of the Wande Jincang 50 Index is 13 times, which is at the quantile level of 12.5% in the past five years. Overall, the current core assets of A-shares have become a phased depression in the spring turmoil.
Core assets are expected to make up for lithium batteries and innovative drug values, but focus on
External disturbances are expected to be limited before April, domestic economic and policy expectations will further improve, expectations for the return of foreign capital will heat up, while domestic active capital positions are already at a high level, and institutional funds with extreme position holding styles also need to be rebalanced. In this context, the replenishment of A-share core assets may be an important point after the spring turmoil accelerates. In this process, it is expected that varieties with enough imagination space, enough low time, and relatively complete clearing of institutional positions will be relatively sustainable, among which lithium batteries and innovative drugs are worthy of attention. After the emotions brought by DeepSeek calm down, it is expected that the AI sector will shrink in a direction with greater economic certainty.Intelligent driving and end-side AIIt is a direction worthy of continuous attention. The wave of AI localization deployments promoted by DeepSeek will also bring market awareness.End-side device chips, memory and batteries, etc.The attention of the link. From a monthly perspective, we believe that after core assets make up for the increase, the market’s attention to the low-wave sector will increase again, and we recommend closing the gap.Note the theme of non-American sailing + consumer and monopoly dividendsBarbell strategy.
risk factors
Friction between China and the United States in the fields of science and technology, trade, and finance has intensified; domestic policy strength, implementation effectiveness and economic recovery have fallen short of expectations; macro liquidity at home and abroad has tightened beyond expectations; conflicts in Russia, Uzbekistan and the Middle East have further escalated; and my country’s real estate inventories have fallen short of expectations.
