Source: Broker China
Author: Shi Qian

Today, the A-share market is facing major changes.$SSE Composite Index (000001.SH)$At one point, it fell by nearly 40 points, and individual stocks also rose less and fell more. Meanwhile, the RMB also underwent major adjustments. At the same time, foreign investors have reproduced net sales. The Hong Kong stock market, the South Korean stock market, and the Australian stock market also fell.

So, what actually happened? Analysts believe there are two main reasons for the recent adjustments:

The first is due to geographical reasons. The US Congress recently went wrong again, trying to exclude Chinese assets from index mutual funds and remove the corresponding capital gains tax concessions.

Second, the foreign exchange market has continued to be in turmoil recently. Expectations of US interest rate cuts have declined again, and the US dollar index has continued to rise. On March 22, the offshore renminbi fell below the 7.26 mark against the US dollar.

Sudden A-share variables

In early trading today, the A-share market suddenly plummeted.

The first surprising thing was the foreign exchange market. On March 22, the offshore renminbi fell below the 7.26 mark against the US dollar. At one point during the day, it fell more than 370 basis points.

Against the backdrop of the weakening RMB, both the A50 and A-share markets have slumped. FTSE China A50 futures once fell by more than 1.6%. MSCI China A50 Connectivity Index futures fell nearly 1%. Hong Kong stocks also followed the slump.$Hang Seng Index (800000.HK)$It fell more than 2%,$OOIL (00316.HK)$The decline widened to 13%, leading the blue chip decline.$CK ASSET (01113.HK)$It fell nearly 12%. The industry sector declined almost across the board.$Hang Seng TECH Index (800700.HK)$The decline widened to 4%,$JD HEALTH (06618.HK)$fell by more than 11%,$BILIBILI-W (09626.HK)$It fell more than 8%. A-shares opened low and the Shanghai Composite Index dropped 30 points with little resistance.$Chinext Price Index (399006.SZ)$fell 1%,$Shenzhen Component Index (399001.SZ)$It fell 0.92%. The decline was highest in the low-altitude economy, precious metals, medicine, etc.

After the opening of the market in the afternoon, it was clear that trusteeship funds entered the market. The trading volume of the Shanghai and Shenzhen 300 ETF has increased rapidly. The turnover of the larger Shanghai and Shenzhen 300 ETF has already exceeded 3 billion yuan, exceeding yesterday's full-day turnover of 2.22 billion yuan. In addition, the SSE 50 ETF also received capital purchases. The larger SSE 50 ETF had a turnover of nearly 2 billion yuan, exceeding yesterday's transaction level of 1.5 billion yuan. The index's decline narrowed as a result.

So, what actually happened? Analysts believe that the reason mainly comes from two directions:

The first is a geographical reason. Recently, the US Congress made another minor move against China to exclude Chinese assets from mutual funds. Furthermore, the crackdown on high-tech industries such as chips in China continues. Today, Global News reported that, according to several foreign media reports such as Reuters, two US senators proposed a bill on the 21st local time to strengthen the ban on “prohibiting the sale of US strategic oil reserves to China” passed by the US Congress in January last year. In response to the ban passed earlier, the Chinese side stated that it urges relevant US politicians to abandon the Cold War zero-sum mentality and ideological bias, correctly view the relationship between China and the US, and do more things conducive to enhancing mutual trust and cooperation between China and the US, rather than the other way around.

Second, disturbances in the foreign exchange market. After the Federal Reserve announced the March interest rate decision on Wednesday, former US Treasury Secretary Summers criticized the Fed's rush to hint to the market that interest rates may be cut in the next few months against the backdrop of a strong economy and still high inflation. Today, the US dollar index rose again, hitting a new high since March 1, at 104.15, while the yen, pound, etc. all fell. A rise in the US dollar index will have one consequence, which is the continued outflow of foreign capital. Yesterday, net sales of foreign capital were over 6 billion yuan, and this morning it was close to 3 billion yuan. Prior to that, foreign capital supported the A-share market quite a bit. We can also see that the rise in the US dollar index is not only affecting A-shares and Hong Kong stocks, but the South Korean stock market and Australian stock market are also falling.

In the afternoon, individual media and copyright stocks continued to rise, while Reader Culture, Huace Film and Television, etc. rose and stopped. Three-body concept stocks such as Silk Road Vision have also performed well. The computing power leasing concept bucked the trend. Runze Technology and Yunsai Zhilian rose and stopped, Runjian Co., Ltd. was close to rising or stopping, and Litong Electronics, Hongxin Electronics, and Tongniu Information quickly followed suit. According to the CITIC Construction Investment Research Report, with the continuous increase in the number of Kimi users and visits, there has been a brief period of insufficient computing power support. Considering the increase in subsequent model training and inference requirements, it is expected that computing power requirements will further increase, further driving the implementation of computing power requirements.

Is there still a chance?

In fact, there are some structural reasons for the adjustment of A-shares. Prior to this adjustment, the Shanghai Composite Index surpassed that of the Dow during the year. This also means that some stocks have relatively high positive returns during the year. There have been some recent signs of fulfillment, which are also to be expected.

Guotai Junan said that the arrangements for active fiscal policies in the two conference reports tend more towards “implementing major strategies and building capacity in key security areas” rather than traditional investment and consumer balance sheet restoration and cash flow creation. This is lower than the market's optimistic expectations and ability to limit growth expectations and improve overall ROE, so the upper limit of the index's rebound is not high. After the policy expectations of the two meetings have come to an end, investors will welcome the “April Decision” and face verification of economic data and corporate performance. Looking at the present, the resumption of work on major projects and the labor rate after the holiday season are significantly lower than the level of previous years, and the “willingness of enterprises to recruit” after the holiday season is also lower than the level of previous years, indicating insufficient momentum for aggregate demand expansion. Expectations lacked fresh momentum. Combined with the rebound in the market, large increases have already been accumulated, and the market has entered a volatile phase.

Minsheng Securities, on the other hand, believes that manufacturing activities are still dominant, and the upward distribution of profits in the industrial chain has become an obvious factor. The current difference between industrial production and the ex-factory price of products has once again risen to a high point since supply-side reforms, and the volume-price relationship has returned to the state it was in early 2000. The debt-driven model based on real estate since 2010 is fading away, and inequalities in resource consumption〉GDP〉profit of listed companies have emerged. It is worth mentioning that when long-term demand expectations are pessimistic, prices are resilient when upstream companies face supply bottlenecks for a long time. If they face a recovery in medium-term demand expectations in the future, the two will form an upward elasticity in the profits of resource companies. Buying resources and dividend stocks is essentially not pessimistic about total economic growth, but rather acknowledges structural changes in our economy: the Chinese economy is breaking away from the driving model dominated by resident+local government debt expansion since 2010 and returning to the path of industrial development dominated by manufacturing. Despite the differences in intensity, the economic structure is similar to China in the early 21st century, and the concentration of profits upstream is an important characteristic of this cycle. The barrier assets of the new era have already leapt onto paper, embracing resources, physical consumption, and surpassing the “dividend mentality.”

Editor/jayden