market bottom signals are emerging. how should investors respond to the volatility of a-shares?
2024-09-26
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(the author of this article is huang dazhi, senior researcher at xingtu financial research institute)
for a-share investors, the entire third quarter was probably a race back and forth between expectations and disappointment.
after the third plenary session of the 20th cpc central committee and the mid-year politburo meeting set the tone, the market viewed late august to september as a period of intensive policy introduction. after all, judging from the current economic performance, policy stimulus is essential if we want to achieve the annual economic growth target of "around 5%."
moreover, in a series of meetings, the market can also see the official policy expectations that are constantly released. for example, the central political bureau meeting in july proposed "reserve early and launch a batch of incremental policy measures in a timely manner"; the central bank clearly stated in interpreting the august financial data that "it will start to launch some incremental policy measures to further reduce corporate financing and resident credit costs"; on september 19, the national development and reform commission stated at a press conference that "it will strengthen policy pre-research and reserve, and launch a batch of incremental policy measures that are highly operational, effective, and accessible to the public and enterprises in a timely manner".
but in reality, after the real estate "517 new policy", the market has not felt much about the availability of policies since the third plenary session of the 18th cpc central committee in july. since the second quarter, facing the policies of economic slowdown, the fiscal policy is mainly "two new" (large-scale equipment renewal and consumer goods replacement). after the state council meeting on july 19, ultra-long-term special government bonds were introduced to promote the "two new" work. among them, the national development and reform commission took the lead in arranging about 148 billion yuan of ultra-long-term special government bonds for large-scale equipment renewal; and arranged about 150 billion yuan of ultra-long-term special government bond funds to local governments to support the replacement of automobiles and home appliances. compared with the past, a new subsidy project for the replacement of old appliances has been added. the monetary policy is mainly a 10bp interest rate cut in july.
in addition, the widely circulated "small essay" mentioned in the interest rate cut, the reduction of the existing mortgage interest rate and other policies have not been implemented. at the same time, after the federal reserve unexpectedly cut interest rates by 50bp, although the domestic policy space has been opened, there has been no further action.
therefore, from the policy perspective of the third quarter, the policy is a combination of "strong expectations + weak reality". the market has surged in one "small essay" after another, and fell back due to failed policy expectations, and continued to set new lows.
in addition to policies, economic data that was worse than market expectations further reduced the market's risk appetite.
after entering the third quarter, more high-frequency economic data have hit new lows. the actual performance of the economy is also weaker than market expectations. among the three major drivers of the economy, except for exports, which have maintained strong resilience and maintained good growth, consumption and investment have weakened across the board.
the cumulative growth rate of total retail sales of consumer goods, which reflects domestic demand, has been declining since the beginning of 2024. in july and august, the summer vacation came, and the policy stimulus of the "two new" was added. the month-on-month growth rate of total retail sales in august still turned from a growth of 0.27% in july to a decline of 0.01%. the weakness of domestic demand has become one of the core issues restricting economic growth.
more importantly, weak domestic demand has brought about another problem, namely the decline in production. reflected in prices, ppi has fallen more sharply than cpi. reflected in output, it is the gradual decline in industrial added value. although a series of meetings, including the politburo meeting, have emphasized "strengthening industry self-discipline and preventing involutionary vicious competition. strengthening the market mechanism of survival of the fittest and unblocking the exit channels for backward and inefficient production capacity", there is no doubt that market-oriented capacity clearance is long and tortuous, and the stickiness of supply is destined not to be reflected in supply and demand so quickly, and the process of capacity clearance will inevitably lead to a decline in output in specific areas.
so, what about the investment that the market expects to support the bottom? it is still unsatisfactory.
according to the data from the national bureau of statistics, domestic fixed asset investment increased by 3.4% year-on-year from january to august, compared with 4.5% in the first quarter, 3.9% in the first half of the year, and only 2.2% in august alone. in other words, the investment that the market expected to support the bottom line did not increase significantly, and even dragged down the performance of the economy to a certain extent.
entering the third quarter, consumption and investment weakened across the board, with exports being the only remaining support, and strong external demand becoming one of the few bright spots in the economy.
other high-frequency economic data also reflect weak economic performance. for example, the employment data shows that the unemployment rate of the urban labor force aged 16-24, excluding students, was 18.8% in august, up 1.7 percentage points from the previous month, rising for two consecutive months, reaching a new high this year and a new high since the adjustment of the statistical caliber; the m1 growth rate in august continued to exceed expectations and fell to -7.3%, which has been declining since the beginning of the year and has continuously hit a new low since the statistical data was available.
"weak expectations and even weaker reality" have caused market risk appetite to continue to decline, market sentiment has reached a freezing point, and the total market transaction volume has returned to a normal level of 500 billion to 600 billion yuan.
the third reason lies in the change in the capital side of the market. from the beginning of the year to date, many types of funds in the market have continued to flow out. in terms of northbound funds, as of the last published date of august 16, the net outflow of northbound funds this year was less than 2 billion, but based on the data from mid-august to date, the proportion of shares held by the mainland-hong kong stock connect in typical stocks held by northbound funds has declined to varying degrees, which to a certain extent reflects that northbound funds may still be continuing to flow out. the scale of financing and margin trading funds, which reflects investors' risk preferences, has fallen to a new low of 1,361.4 billion yuan in the past four years (as of the close of september 20), with a net outflow of more than 220 billion yuan in 2024. other public and private offerings are facing greater redemption pressure as the market continues to hit new lows. the only incremental funds are social security, insurance, and the national team's protection funds.
let's look at the most important market-supporting funds. the main purchase targets are the four largest csi 300 etfs (huatai-pinebridge csi 300 etf, e fund csi 300 etf, hua xia csi 300 etf, and harvest csi 300 etf). taking the largest huatai-pinebridge csi 300 etf as an example, there are two periods of the strongest market-supporting periods this year. one is around the spring festival, and the other is around the third plenary session of the 18th cpc central committee. although the scale of the entire third quarter seems to have grown significantly, it is basically concentrated in july. there was little incremental capital entering the market in early and mid-september.
the absence of market-protection funds to a certain extent is also one of the important reasons for the general decline in the entire market in the past two months.
failed policy expectations, economic performance weaker than the market, and the absence of market-supporting funds are all reasons for the recent poor market performance.
so how should we view the market outlook?
first, the incremental policy is still the focus of the current market game. although there have been a series of official statements recently, it still takes a long time for the policy to be studied and implemented. before the long holiday, there has always been a period of intensive policy release. if the policy still fails before the long holiday, the more important decision-making observation point may need to wait for the central political bureau meeting and the central economic work conference at the end of the year.
second, the time for the implementation of the long-awaited interest rate cuts and existing mortgage rate cuts. the fed’s unexpected interest rate cuts have opened up space for domestic monetary policy, and tools such as reserve requirement ratio cuts and interest rate cuts are all options.
third, a series of bottom signals have appeared. judging from multiple indicators such as the net asset value ratio of all a-shares, the risk premium of the index, and the stock-bond return ratio, the market risk preference and sentiment are already at a large bottom area, the pe valuation is also at the lowest range in history, and the proportion of trading volume to free float market value is also close to the lowest in history. at present, the dividend yields of many representative a-share companies have far exceeded the risk-free rate of return (10-year treasury bond yield). the dividend yield of the csi 300 index is close to 3.4%, while the 10-year treasury bond yield is only 2.03%.
although these bottoming signals do not mean an immediate rebound, they also mean that the potential for equity assets to rise in the future is increasing. the irrationality of the market may exceed the expectations of most investors. if you believe in the return of the cycle, what you need to do now is to remain patient and wait for the arrival of the next cycle.
this article only reflects the author’s views.
