Recently, in the capital market, there has been a classic escape trade: stocks are weak, bonds are strong, and the renminbi is depreciating. Behind the risk avoidance trade, the market is pessimistic about domestic growth prospects.

Last week, group asset pricing phenomenon, worth mentioning: A-share largest market cap company changed hands, ICBC surpassed Kweichow Moutai with a market cap exceeding RMB 2 trillion.

Recently, the bank sector rallied due to dividend pricing logic, which is the pricing of class bonds in stocks; Moutai is a symbol of China's leveraged growth prosperity.

The market value of Moutai being surpassed by ICBC can be seen as a footnote to China's current asset risk aversion contraction.

When will China's asset risk preference be restored?

The two core factors that have suppressed China's risk assets since last year are tight US dollar liquidity and a downturn in China's real estate market. Expectations for the recovery of China's asset risk preference are also closely related to these two variables. The most effective policy to rescue China's real estate is to lower interest rates. Therefore, how can China's asset risk preference be opened up? Wait for loosening, overseas rate cuts, and China's rate cuts.

Last week's focus of the capital markets was as follows:

(1) The A-share largest market cap company changed hands and ICBC's market cap exceeded Kweichow Moutai;

(2) Nvidia's stock price fell sharply, with the AI-related industry chain following the adjustment;

(3) With industries recovering and AI accelerating iteration, the consumer electronics sector is relatively hot, and the Apple industrial chain is performing strongly.

(4) The technology conference ignited industry passion, and the industrial mother machine concept ushered in a surge.

Recently, the capital market has offered a classic risk-aversion combination: stocks are weak, bonds are strong, and the renminbi is depreciating. Behind the risk avoidance trade is a pessimistic view of domestic growth prospects.

Last week, A-share trading once again focused on two extremes: one end is dividends, with the banking, oil and petrochemical, power, and public utilities sectors leading the gains. The other end is policy information-driven industrial mother machine trading activity, as well as trade in AI that may shorten the Apple user replacement cycle, with the consumer electronics industry chain showing strong performance.

Last week, cyclicals strongly correlated with the economy continued to decline, even as Beijing's property policy was relaxed. Real estate, non-bank finance, and healthcare sectors showed weak performance, and Hong Kong stocks continued to pull back, with the Hang Seng Index falling below 18,000 points.

The Middle East situation is fluctuating, and the risk of war between Israel and the Hezbollah militia in Lebanon has pushed up oil and gold prices, with the renminbi exchange rate weakening recently.

Since the export cooling in May, the market's trading style has returned to the period of September to November last year. This indirectly confirms the A-share market trends from February to early May this year, which consisted essentially of a small rebound in trading due to overseas demand and China's rush for exports.

With overseas demand cooling down and China's exports going south, the market has picked up two medium and long-term trading themes: the strong US dollar and high-pressure US bonds that suppress China's asset risk preference, and real estate data that is still bottoming out, giving extraordinary confidence to China's bond market.

When will China's asset risk preference be restored?

The latest manufacturing PMI for June is 49.5, the same as May. It is expected that the economic, financial, and export data to be released in the near future will not change much, and will largely continue the trend of May. In other words, for now, we cannot expect economic data itself to stimulate the improvement of China's asset risk preference pricing.

Since the two core factors that have suppressed China's risk assets since last year are tight US dollar liquidity and a downturn in China's real estate market, expectations for the recovery of China's asset risk preference are also closely related to these two variables. One is the loosening of US dollar liquidity, and the other is the turnaround of the real estate market. Therefore, how can China's asset risk preference be opened up? Wait for loosening, overseas rate cuts, and China's rate cuts.

Loose monetary policy is the condition for China's asset wind bias to open up.

The probability of loose monetary policy in the US in the third quarter is low, and it is currently expected that the earliest inflation data for rate cuts will not be seen until the fourth quarter. When will China's real estate hit bottom is the most discussed topic in the market, but there are also some differences of opinion.

If there was still expectation in the market before, expecting that after the policy of first-tier real estate is opened, China's real estate will follow a traditional path of "first-tier real estate stabilizing and rebounding -> sales and prices of second-tier low-level cities' real estate hitting bottom"; However, since last year, Guangzhou, Shenzhen, Shanghai, and even Beijing have gradually opened up their real estate policies, but the prices of first-tier real estate have not changed significantly. The market realizes that this round of real estate is different, and the future development path cannot be based on traditional frameworks.

We previously used data on the ratio of urban and rural residents to households to prove that the ratio will change from less than 1 to greater than 1 by 2021. This marks the end of the old era of real estate investment before 2021, that is, the end of the investment product model.

China's real estate is in the process of switching from an investment product to a consumer product. In this process, policies such as real estate storage and city-specific policies are useful, but not the key policies. The most effective policy to save China's real estate is to lower interest rates.

How can the wind bias of Chinese assets be opened up? Wait for loose monetary policy, overseas interest rate cuts, and China's interest rate cuts.

Editor/ping