CITIC Securities pointed out that a new consensus has not yet been formed. From the perspective of allocating domestic demand consumption and excellent growth, it is possible to focus on areas where there are new industry trends or changes in the industry pattern next year. Domestic demand consumption can focus on the Internet, new retail, and the banking economy. Excellent performance growth can focus on the autonomous driving industry chain and the consumer electronics sector driven by AI smart wearables.

The economic policy setting is still positive. The policy is likely to be dynamic, with targeted responses based on the actual situation; static extrapolation is not advisable; the loose monetary environment is still the strongest support for the market, and the economy and price indicators are expected to remain stable; the three types of capital have not yet reached consensus. It is expected that the market ecology of active capital and institutional separation and pricing and the market ecology with rotating themes will continue. The allocation ideas will still point to a shift between domestic demand consumption and excellent performance growth.

First, judging from policy setting, there is relatively limited room for unconventional fiscal policies, but there is more room for imagination in monetary policy, and a relaxed macroeconomic environment is sufficient to support market activity.

Second, judging from economic performance, the real estate market has initially shown signs of stabilization since December. It is expected that the “two new” policies will be seamlessly connected, and there will be some support for consumption and investment during the policy vacuum period.

Finally, judging from the market environment, it is expected that active capital and retail investors will continue to drive the theme in the short termSector rotationHowever, domestic subjective multi-agency institutions as a whole still lack pricing capabilities.

Economic policy setting is still positive. Policy probability is dynamic, and targeted responses are made according to the actual situation; static extrapolation is not advisable

1) There is relatively limited room for unconventional fiscal policies, but there is more room for imagination in monetary policy. The CITIC Securities Research Department's policy team predicts that the deficit rate is expected to rise to 4% next year. New special bonds will increase by about 600 billion yuan compared to this year, and special treasury bonds will increase by 5,000 to 1000 billion yuan compared to this year. Based on this, we predict that if 2 trillion yuan bonds are considered, the broad fiscal deficit will increase 4.4 to 4.9 trillion yuan compared to this year (about 8.9 trillion yuan), which is a significant increase. This should be considered an “unconventional” fiscal policy. Furthermore, the current Central Economic Work Conference called for fiscal spending to pay more attention to benefiting people's livelihood, promoting consumption, and increasing momentum. The special actions to boost consumption mentioned for the first time were a major breakthrough. However, we also need to see that, on the one hand, due to the fact that debt pressure in some regions is still high, the central government's leveraging effect is limited; on the other hand, China, as a country where production taxes are the main body, even if it shifts to policy ideas of direct consumption stimulation and expansion of social security spending, under the overall framework of fiscal balance and budget balance, we judge that it will be difficult to introduce large-scale consumption incentives in the early stages. Despite this, the shift in direction and thinking is clear, and the scale, scope, and method of future incentives may gradually expand, and the market should maintain confidence in this. Compared to fiscal policy, we expect there will be more room for monetary policy relaxation next year. Facing the potential threat of additional tariffs, bilateral fluctuations in the RMB exchange rate next year may be more flexible than this year, thus giving the central bank more room to focus on stimulating domestic demand and stabilizing the market. Furthermore, next year's monetary policy will also need to balance the heavy responsibility of stabilizing the property market and stock market. The Central Economic Work Conference proposed implementing a “moderately loose monetary policy”. The macro group of the CITIC Securities Research Department expects OMO (open market operation) interest rates to fall by 30 to 40 bps next year, reverse repurchase interest rates have room to fall by 40 to 50 bps, and LPR interest rate cuts may be above 50 bps. Overall, we think there is more room for imagination in monetary policy.

2) A relaxed macro environment is sufficient to support market activity. No specific numerical guidance was given at this economic work conference. There is also great disagreement among institutional investors as to whether these policies are sufficient to boost domestic demand. Furthermore, “strengthening unconventional countercyclical regulation” mentioned in the Politburo meeting in December 2024 did not appear in the press release of the Economic Work Conference, so it may be difficult to stimulate the sentiment of institutional investors. However, from an objective point of view, the relaxation of the macro-monetary environment is certain, and it does not affect active capital actively seeking opportunities. Looking at the recent bond market, from September 23 to December 13, interest rates on 10-year treasury bonds fell by 26.3 bps, clearly exceeding 30-year treasury bonds (13.5 bps). The interest rate spread on 30-year treasury bonds increased from a low of 9.9 bps on September 23 to 22.7 bps on December 13. This is different from the fact that institutions flocked to long-term treasury bonds in the third quarter due to pessimistic long-term expectations. Market pricing more reflects expectations of liquidity easing. Furthermore, we believe that there is no point in currently playing long and short games on changes in the wording and policy details of the Politburo meeting and the Central Economic Work Conference. With the September experience, we believe that the policy is likely to dynamically respond in a targeted manner based on the current actual situation, and static extrapolation is not advisable. The truth is that it is very difficult to try to accurately evaluate the effects of policies and choose the right timing, and the success rate for A-shares to obtain excessive returns is not high; they can only focus on a broad direction and always hold a certain positive position.

During the major policy gap period before next year's two meetings, a relaxed monetary environment is expected to remain the strongest support for the market. It is expected that economic and price indicators will remain stable

1) There are initial signs of stabilization in the real estate market, and it will not further drag down the economy for the time being. Since December 2024, housing prices and transaction data have continued to send positive signals, and the real estate market has shown initial signs of stabilization. In terms of housing prices, as of the second week of December 2024, Beijing, Shenzhen, and Chengdu had basically stabilized, and the decline in the rest of the cities continued to subside; in terms of volume, according to the second-hand housing transactions in key national cities according to the official WeChat account of Bingshan Dashu Housing Search, the cumulative turnover of 11 cities in the 13 sample cities continued to increase month-on-month in the 1st to 2nd week of December. This economic work conference continued the previous policy framework, including unlocking the potential demand for housing, remodeling dilapidated housing in urban villages, controlling the supply of new land, revitalizing existing land use and commercial housing, and disposing of existing commercial housing. The effective implementation of these policies will help the real estate market continue to be stable next year. The Real Estate and Property Services Group of the CITIC Securities Research Department judged that all current forward-looking real estate indicators point to initial positive results. It is expected that the real estate market will maintain smooth operation until the first quarter of next year. “Xiaoyangchun” is expected to be realized, and there is still a possibility that policy measures such as lowering interest rates on mortgage loans will be further strengthened.

2) It is expected that the “two new” policies will be seamlessly connected, and there will be some support for consumption and investment during the major policy vacuum period. On the consumer side, the biggest concern in the current market is that the economy may weaken during the major policy vacuum period before next year's two meetings. For example, if the “two new” policies are “broken,” it may slow down consumption. However, we believe that the “two new” policies, especially the consumer goods trade-in subsidy policy, still have a high probability that transitional arrangements will be made before next year's two meetings to ensure the smoothness of subsidies. In addition, the scope of subsidies may also be further extended to automobiles, home appliances, consumer electronics, and the home, and the driving effect on the industrial chain will become more obvious. We believe that in the foreseeable next quarter, there is a low probability that there will be a marked decline in consumption similar to the beginning of the third quarter of this year. On the investment side, special debt spending peaked in the fourth quarter. The year-on-year performance of petroleum asphalt, cement delivery rate, and mill operation rate all improved for 2 consecutive months, and physical infrastructure workload picked up markedly. Furthermore, the manufacturing PMI improved significantly in November, which also indicates that manufacturing investment will maintain a high growth rate; the decline in real estate investment growth may narrow slightly in November, so the overall fixed asset investment growth rate or improved slightly. The macro team of the CITIC Securities Research Department predicts that the year-on-year growth rate of fixed asset investment in the fourth quarter of 2024 will reach 3.1%, up 0.6 percentage points from the third quarter, and will continue to improve slightly in the first quarter of next year.

No consensus has been reached on the three types of capital, and the market ecology of active capital and institutional pricing and the market ecology of rotating themes will continue

1) The market will continue to be popular, and active capital and retail investors will continue to drive the rotation of thematic sectors. According to the CITIC Securities channel survey, the sample active private equity positions in the last 3 weeks all clearly exceeded the historical median position level (75.0%). The latest position level was 76.1%, which is clearly more active than the public offering. We believe that with the incremental capital volume brought about by opening new accounts since September, it is enough to support the average daily transaction amount level of 1.2 trillion yuan or more. If the balance of the two loans increased by 521.6 billion yuan compared to the low on September 23, as long as there are no exogenous liquidity risk events, it may be possible to maintain an average daily transaction level of 1.5 trillion yuan or more for some time to come, which can at least satisfy the rotation of 2 to 3 topics at the same time, and these theme markets will basically not be affected by the institutional policy game. Judging from our research above, active capital is not concerned about technical issues such as the details of fiscal policy or whether fiscal policy can promote the return of inflation; on the contrary, new policy ideas, including AI+ and new changes in the consumer sector (initial economy, ice and snow economy, silver hair economy, etc.), are very popular among active capital groups.

2) Domestic subjective multi-tier institutions as a whole still lack pricing capacity. According to Refinitiv's overseas fund flow database, the sample active funds tracking MSCI China have had net outflows for 9 consecutive weeks, but the net outflow scale has decreased in the last 5 weeks. Since November 2024, A-shares have lacked inflows of foreign capital, and the net outflow of foreign capital has not been reversed since the December Politburo meeting and the Central Economic Work Conference. Domestic public funding institutions are still facing a slump in active product distribution, ongoing pressure to redeem them, and positions have declined markedly. According to CITIC Securities channel research data, since April 24, the stock sample public offering products had net redemptions for 33 consecutive weeks. The net redemption rate declined somewhat in November, but the net redemption rate in the last two weeks increased above average, at 0.75% and 1.31%, respectively. The financial product group of the CITIC Securities Research Department estimates that as of the end of November 2024, the positions of common stock and partial share hybrid products were 79.2% and 74.7%, respectively, which is 4.6 and 5.0 percentage points lower than their average positions since 2011 (83.8% and 79.7%). Overall, domestic subjective institutional capital still lacks pricing power. There is a lack of positions in clearly overvalued sectors and individual stocks in the market to calm fluctuations, and there is also a lack of capital to promote value return in relatively undervalued high-performance sectors. In the absence of insurance funds to increase positions, even in the dividend sector, which is highly recognized by institutional investors as a whole, the overall absolute return has been negative since October 2024, and it has outperformed the Shanghai Composite Index.

The allocation idea still points to domestic demand consumption and excellent performance growth

The Politburo meeting in December 2024 and the Central Economic Work Conference sent positive policy signals. In particular, there is a lot of room for imagination in monetary policy. As the policy game comes to an end, the existing policy mix may not stimulate institutional sentiment, but a relaxed macro environment is sufficient to support active capital. Since the real estate market has shown initial signs of stabilization, and the “two new” policies are still likely to be “seamlessly connected,” we expect economic and price indicators to remain stable until next year's two meetings. In terms of liquidity, there is still no consensus on the three types of capital. In the absence of foreign capital inflows, domestic subjective bulls still lack pricing capacity as a whole, but the market popularity is still high. Active capital and retail investors continue to drive the rotation of themed sectors, and the “separate pricing” market ecology will continue. In terms of allocation, a new consensus has not yet been formed. From the perspective of allocating domestic demand consumption and excellent growth, it is possible to focus on areas where there are new industrial trends or changes in the industry pattern next year. Domestic demand consumption can focus on the Internet, new retail, and the banking economy. Excellent performance growth can focus on the autonomous driving industry chain and the consumer electronics sector driven by AI smart wearables.

risk factors

Frictions in the fields of technology, trade, and finance between China and the US have intensified; domestic policy strength, implementation effects, and economic recovery have fallen short of expectations; macro-liquidity at home and abroad has tightened beyond expectations; conflicts between Russia, Ukraine, and the Middle East have further escalated; and China's real estate inventories have fallen short of expectations.