Source: Citic Securities Research Author: Jiang Ya, Yang Qingpu, Xu Yingbo, Liao Yuan, Dan Zhuling Dubbed 618 grand promotion in 2024 has come to an end, and Citic Securities expects that the e-commerce large cap GMV during this period is expected to achieve low double-digit growth (+12% or so), continuing the positive trend since the beginning of the year and May. Structurally, it is judged that the growth center of content e-commerce platforms has moved downward, and the growth rate of shelf e-commerce platforms has rebounded under active investment. Platform-wise, Citic Securities judges that the core platform GMV growth rate during 618 is ranked as follows: TikTok > PDD Holdings > Tmall > JD.com.

The policy orientation of the Central Economic Work Conference is expected to remain positive, which will again boost investor confidence. With the implementation and effectiveness of the previous comprehensive policy package and the strengthening of social financing, the domestic economy is steadily recovering and maintaining momentum from year to year. The macro liquidity environment is becoming stable, and there is still the possibility of a reserve requirement ratio cut in the near future. Institutional funds, active funds, and retail funds are expected to resonate with each other, driving the A-shares into the year-end market. In terms of allocation, it is recommended to continue switching to top-performing growth and domestic consumer sectors.

First, the Central Economic Work Conference is expected to maintain a positive tone in increasing counter-cyclical adjustments, with the GDP growth target for next year expected to be around 5%. The fiscal deficit ratio is likely to rise to 4%, and both special and general bonds are expected to increase in scale compared to this year. The consensus on market policies is expected to further improve, which will again boost investor confidence, particularly enhancing the risk appetite of institutional investors; at the same time, negative external factors have been fully digested by the market, and investors' reactions have become muted.

Second, the implementation and effectiveness of the previous package of policies, coupled with an increase in social financing, kept the domestic economic prosperity at a high level in November. The economy is expected to make a steady finish this year, with a growth rate around 5%. Driven by fiscal policies and state-owned enterprises, social financing is expected to effectively support the steady recovery of the real economy into the new year without losing momentum.

Finally, the central bank is calmly responding to internal and external pressures, with overall macro liquidity tending to be stable across the year-end, and there is still the possibility of a reserve requirement ratio reduction in the near future. The downward trend in interest rates enhances the value of equity allocations, and long-term funds such as insurance are expected to enter the market ahead of time. Institutional funds, active funds, and retail funds are likely to resonate, driving A-share performance across the year-end.

The policy tone of the Central Economic Work Conference is expected to remain positive, which will again boost investor confidence.

1) The Central Economic Work Conference is expected to maintain a positive tone in increasing counter-cyclical adjustments.

The strong signals of domestic counter-cyclical policies in late September resulted in an expected major reversal; however, after November, the pace of policy implementation slowed down, lowering market policy expectations, especially those of institutional investors.

In mid-December, the 2024 Central Economic Work Conference is expected to be held. Although, according to convention, the conference generally does not announce specific targets such as economic growth rate or deficit ratio, we believe that this year's meeting will still maintain a proactive stance on enhancing counter-cyclical adjustments, with a continued focus on real estate policies and support for domestic demand.

We expect that next year, China's economic growth target may still be maintained at around 5%, and correspondingly, the deficit ratio is likely to increase to 4%; the special treasury bond quota may be 3 trillion yuan, of which 1 trillion yuan is for supplementing the capital of commercial banks, and 2 trillion yuan may be for major national projects and consumer subsidies; the scale of newly issued special bonds may reach over 4 trillion yuan.

Four aspects of policy highlights to boost confidence:

1) Debt reduction, accelerate the decentralization and issuance of special bonds used for replacement.

2) Real estate, implement urban village renovations, acquisition of idle land and the stockpiling of existing housing, relaxation of demand-side policies.

3) Commodity consumption continues to be expanded through trade-ins, service consumption broadens supply.

4) Technology and industry policies focus on industrial upgrading, self-control, and supporting private enterprises.

2) After the external negative factors have been fully digested by the market, investors' reactions have become dulled.

Regarding tariffs, this time Trump claimed that the tariffs proposed on China are not part of a comprehensive tariff plan; there may still be a possibility of using tariff threats under other names at any time in the future. It is more likely to implement tariffs on China in batches, and the negative expectations have been phased out.

In terms of industry, on December 2, the U.S. Department of Commerce updated its semiconductor export control policy and entity list, mainly targeting mainland China's semiconductor companies; on December 3, China's four major industry associations for semiconductors, autos, internet plus-related, and communications collectively issued a statement calling for the active use of chips produced by domestic and foreign invested enterprises in China. The market has already anticipated this, and it is expected to further accelerate the domestic substitution process throughout the entire industry chain in the long run.

In the A-share market, chip etf and the overall sse science and technology innovation board 50 index continue to exhibit characteristics of excess returns during the increased trading volume since the 924 market, with some pullbacks during reduced trading volume, showing a dulled response to this round of negative information.

With the implementation of previous policy packages and the strengthening of social financing, the economy steadily recovers across the year-end without losing momentum.

1) In November, the domestic economic prosperity remained at a high level, and it is expected that the economy will conclude this year steadily with a growth rate of around 5%.

Regarding the economic readings for November, on the production side, industrial added value is expected to rebound month-on-month under the manufacturing PMI reading of 50.3.

On the demand side, the overall growth rate of fixed asset investment may slightly increase; the effects of the policy to replace old products with new may continue to be released, with autos becoming the core beneficiary category alongside home appliances. The retail sales growth may record around 4.5%; exports may witness a 'rush to export' phenomenon under the influence of Trump's tariff expectations, with November likely maintaining high single-digit growth.

In November, real estate sales and housing prices improved significantly, with price stabilization established in some cities. However, a comprehensive halt to the decline and stabilization still requires policy support. A commentary from Xinhua News Agency also stated, 'This year's overall economic growth target is around 5%, and we have been striving towards this goal. With hard work, a figure slightly to the left or right of 5% is acceptable.'

With the boost from fiscal policies and state-owned enterprises driving social financing, the real economy is steadily recovering across the year-end with no decrease in momentum.

In financial data, it is expected that fiscal stimulus in November will drive a rebound in social financing, and there may also be improvements in residential loans.

On one hand, the speed of issuance for debt related to debt resolution is accelerating. Finance Minister Lan Foan stated in a report on December 5 that the Ministry of Finance has allocated an additional 6 trillion yuan in debt limits to various regions, expediting the issuance and usage process to ensure that refinancing bonds "issue a batch and replace a batch," allowing the policy effects to be released quickly.

On the other hand, financing from state-owned enterprises is also starting to take effect. According to disclosures from China Monetary Network, China Reform Holdings and China Chengtong announced plans to issue a total of 500 billion yuan in special bonds to support investment in key 'two heavy, two new' projects. We anticipate that through various methods of fund usage, these special bonds will generate approximately 727 billion to 1 trillion yuan in fixed asset investment, aiding in achieving economic targets.

The macro liquidity environment is becoming stable, and three types of funds are expected to resonate, driving the year-end rally of A shares.

The central bank is calmly responding to internal and external pressures, with overall macro liquidity remaining stable across the year-end, and there is still a possibility of a rate cut in the near future.

The macro liquidity situation faces two major issues: first, concentrated issuance of local debt is impacting interbank liquidity, and the central bank's specific response is through net purchases of government bonds and reverse repos to hedge liquidity pressure; the current peak of local debt issuance has passed. Second, the depreciation pressure on the yuan exchange rate has increased, as since Trump's re-election as the US president, the dollar to yuan exchange rate has rapidly risen from 7.1 to above 7.2, approaching the critical level of 7.3. In response, the central bank guides the midpoint rate and market expectations through counter-cyclical factors. Additionally, a slight rise in the unemployment rate in the US in November has increased the probability of rate cuts, and a 25 basis point rate cut by the Federal Reserve in December is expected to alleviate the depreciation pressure on the yuan.

In the face of internal and external pressures, the central bank is responding calmly. According to the FICC team of Citic Securities Research Department, it is expected that the liquidity gap in December will be limited, but attention should be paid to the potential for a front-loaded issuance of local debt at the beginning of 2025, with the possibility of a rate cut not being ruled out at the end of 2024 or the beginning of 2025.

2) The upward adjustment of the interest rate center enhances the value of equity allocation, and the entry of long-term funds such as insurance is expected to be advanced.

The yield on government bonds has accelerated downward towards the end of the year, with the 10-year government bond yield dropping below 2% on December 2. The inversion with the csi 300 dividend yield has deepened, with a difference of 1.0 percentage points as of December 6. In this environment, the appeal of allocating to the dividend sector has further increased, with the csi dividend index rising 4.5% over the past two weeks, outperforming the csi 300 index by 1.7 percentage points. Additionally, high-dividend ETFs have recently attracted significant inflows, with dividend ETFs seeing continuous net inflows for five weeks.

Insurance funds that have previously reduced positions to realize profits are currently in a wait-and-see mode. In an environment where long-term interest rates lack obvious appeal, reallocating to equity assets is clearly a better choice compared to increasing bonds, and the long-term institutional capital is expected to enter earlier. As the central economic work conference revives institutional risk appetite, related funds are expected to resume inflows.

3) Institutional funds, active funds, and retail funds are expected to resonate, driving the A-share year-end market.

Active trading funds maintain a positive sentiment, with sample active private equity funds continuing to increase positions, reaching a level of 75.7% in the week of November 29, surpassing the historical median position level (75.1%); the financing balance remains high, consistently above 1.8 trillion yuan since November 11. As of December 5, the market financing balance reached 1854.8 billion yuan.

In the public fund sector, the existing sample public funds continue to face redemption pressure, but the weekly net redemption rate has marginally decreased, showing significant improvement in the net redemption rate over the last three weeks compared to the previous five weeks.

Regarding foreign capital, the outflow from both active and passive funds that track China has marginally slowed down. As of the week of December 4, sample active funds tracking MSCI China have experienced net outflows for eight consecutive weeks, with the recent week's net outflow being 0.24 billion dollars, significantly reduced compared to the previous three weeks' outflows of 0.52, 0.5, and 0.43 billion dollars; in addition, outflows from passive funds tracking MSCI China have also marginally slowed, with the net outflows in the past three weeks being 2.09, 1.31, and 0.52 billion dollars respectively.

The risk appetite of institutional funds is expected to resonate with active and retail funds, driving the A-share year-end market.

The policy will once again boost market confidence.

The policy orientation of the Central Economic Work Conference is expected to remain positive, which will again boost investor confidence. With the implementation and effectiveness of the previous comprehensive policy package and the strengthening of social financing, the domestic economy is steadily recovering and maintaining momentum from year to year. The macro liquidity environment is becoming stable, and there is still the possibility of a reserve requirement ratio cut in the near future. Institutional funds, active funds, and retail funds are expected to resonate with each other, driving the A-shares into the year-end market. In terms of allocation, it is recommended to continue switching to top-performing growth and domestic consumer sectors.

From the perspective of early allocation of high-quality growth and domestic consumption, it is important to focus on areas with trends in new industries or changes in industry patterns next year. High-quality growth can focus on the autonomous driving industry chain and the consumer electronics sector driven by AI smart clothing, while domestic consumption can focus on internet plus-related and new retail.

In addition, part of the low-valued, pro-cyclical varieties can currently be used as a transition, such as aluminum, copper, state-owned large banks, and state-owned real estate developers. Once the end-of-year policy exceeds expectations or price signals stabilize in advance, these pro-cyclical varieties may become the biggest cross-year main line in all market expected differences. Even if policies and price signals still fail to stimulate institutional funds' confidence in the short term, the positions and expectations of these varieties are relatively low now. The entry of cross-year insurance and other allocation-type funds will also provide certain support for their valuations.

Risk factors

Frictions in technology, trade, and finance between China and the USA are intensifying; the domestic policy intensity, implementation effects, or economic recovery may fall short of expectations; macro liquidity at home and abroad is tightening more than expected; conflicts in the Russia-Ukraine and Middle East regions are further escalating; the digestion of real estate inventory in China is not as expected.

Editor/Jeffy