The A share turnover broke through 600 billion again today, with a turnover of 580.6 billion yuan in the Shanghai and Shenzhen stock markets, a decrease of 125.1 billion yuan from the previous day.

Yesterday, the funds retreated to banks, coal, and other high dividend sectors, and today they are facing the storm again. High dividend sectors represented by bank stocks have all declined, with Agricultural Bank of China falling more than 4%, Bank of China, Bank of Communications, Industrial and Commercial Bank of China, and China Construction Bank all falling more than 2%.

The Shanghai Composite Index, supported by bank stocks, fell below 2800 points at one point, while the Shenzhen Component Index and the ChiNext Index with higher growth potential showed a contrary trend, rising 1%.

Last Friday, on the rare day of a major rebound in A shares, the market was discussing whether a style switch was coming.

To answer this question, let's review it first. Since the core assets crashed in 2021, small cap stocks have been popular for three years and have been quite successful.

When did no one talk about small cap stocks anymore? They used to discuss dividend distribution, high dividend, undervalued value stocks, treasury bonds, etc.

1

When will the small and medium cap style quiet down?

Small and medium cap stocks encountered a rare liquidity crisis in January this year. Fortunately, the national team decisively bought China Southern CSI 1000 ETF and CSI 2000 ETF in February, which prevented the risk of the liquidity crisis from escalating. The monthly candlestick chart of the WIND micro-cap stock index in February had a long lower shadow line, and funds returned to the market to snatch the chips. Small and medium cap stocks performed well in March.

However, from April to June, regulatory authorities continued to tighten control over high-frequency quantitative trading. This included raising the tiered fee rates for quantitative trading (imposing cancellation fees), increasing trading costs, and in June, the ST storm swept through the entire micro-cap stock market, causing fear of delisting and making retail investors self-deprecatingly say, "Speculating in stocks has turned us all into major shareholders."

Now everyone is completely honest, and no one is returning to the market anymore.

From the market performance perspective, since late May, the core trading signal in the A-share market has been the lack of resonance between internal and external demand improvements, downward revision of fundamentals expectations, and the market once again embracing dividend assets.

Behind the three setbacks encountered by small and medium cap style this year: the first is market liquidity issues; the second is the driving force of economic fundamentals shifting market style; and the third is stricter regulation, with many small and medium cap stocks being subjected to ST implementation, and quantitative funds relying on small and medium cap stocks facing restrictions.

Based on this, there may be three factors to consider when judging whether the style will change: liquidity, fundamentals, and policy orientation.

How do you measure the importance of these three points?

From the perspective of the market consensus, liquidity is like blood. In the case of insufficient liquidity, fundamentals have to give way to liquidity, meaning that whoever has the money has the final say.

2

Did the public funds increase in the first half of the year?

A reader commented on yesterday's article, "Surprisingly, none of the top twenty public funds are the four major banks."

Since it is said so, we have to mention a question - Does everyone think that the fund managers of active equity funds still have money to buy the four major banks? Or, is there an increase in public funds this year?

(The content of this article is a list of objective data and information and does not constitute any investment advice)

Of course, there is, but it is not the kind of incremental increase we thought.

The scale of public funds reached a historical high in the first half of the year, reaching 31.08 trillion yuan as of the end of June, a historical high. However, the scale of mixed funds shrank crazily by 2.5 trillion yuan compared to the peak at the end of 2021. The scale of equity funds, including stock ETFs, was 523.223 billion yuan during the same period. The former shrank by 407.175 billion yuan in the first half of the year, while the latter grew by 270.655 billion yuan.

The growth of the scale of public funds relies heavily on fixed-income products. As of June 30th, bond funds have increased by 2.79 trillion yuan since the end of 2021, of which 1.57 trillion yuan was added in the first half of this year. Money market funds have grown by 1.91 trillion yuan in the first half of this year.

Therefore, one of the main tasks for active equity fund managers in the first half of this year was to deal with redemptions, which meant selling the stocks that were performing well.

This is reflected in the heavy-weighted stocks of public funds. Investing in new energy and baijiu stocks, which were once glorious in 2021, has been a disappointment.

As mentioned in previous articles about the evolution of ETFs, the major incremental inflows in the A-share market this year came from ETFs and insurance capital. Now that the semi-annual reports of public funds have all been released, let's take a look at what ETFs these two major sources of capital bought in the first half of the year.

As of the end of June 2024, based on the statistics from Central Huijin Investment Ltd. (referred to as 'Central Huijin' hereinafter), the national team appeared in the top ten holders list of 21 ETFs in the first half of the year, with 12 new additions compared to the end of last year. The total market value of their holdings reached 572.26 billion, with a total shareholding of over 223.2 billion shares, of which 180 billion shares were increased in the first half of the year.

According to the change in market share in the first half of the year, wind data shows that ETF share increased by 193.579 billion shares in the first half of the year, meaning that 90% of the increase in ETFs is brought by the national team.

One interesting point is that Central Huijin's holdings in the first half of the year have begun to be more diversified, no longer focusing solely on the large-cap blue chip index, the CSI 300 Index.

In the first half of the year, Central Huijin increased its holdings of Huatai Bairui Fund CSI 300 ETF, E Fund CSI 300 ETF, Huaxia CSI 300 ETF, Jiashi Fund CSI 300 ETF, Huaxia Fund SSE 50 ETF, and Nanfang Fund CSI 500 ETF by a total of 135.588 billion shares, accounting for 75% of the increase this year, still a shining jewel in the palm.

The 12 new ETFs added by Central Huijin in the first half of the year are worth noting, including E Fund Chinext Composite ETF, Nanfang Fund CSI 1000 ETF, Huaxia Fund CSI 1000 ETF, E Fund Star 50 ETF, GF Fund CSI 1000 ETF, Huaxia 500 ETF, Jiashi Fund CSI 500 ETF, FuGuo Fund 1000 ETF, ICBC Credit Suisse Fund Star ETF, Tianhong Chinext Composite ETF, and E Fund SSE 50 ETF.

If we are more rough, assuming that the top ten holders before the new entrants have a position of 0, then the national team's total purchase of these 12 ETFs in the first half of the year is 47.488 billion shares.

In the process of organizing the list of the top ten holders of ETFs, the ETF evolution theory found many familiar insurance companies. Have you noticed that on August 30th, the day when "one silver falls, everything comes to life", the top-performing sector was insurance.

Besides buying bank stocks, what ETF varieties did insurance capital buy in the first half of the year? Dividend ETF? Treasury bond ETF?

Taking the dividend strategy ETF as an example, the total number of shares increased by 24.043 billion in the first half of the year, with the top ten shareholders alone increasing their holdings by 16.616 billion shares in the first half of the year. This means that 69% of the increase in shares of the dividend strategy ETF in the first half of this year was bought by the top ten shareholders.

Among them, China Pacific Insurance (Group) Co., Ltd. purchased a total of 3.713 billion shares of dividend strategy ETF in the first half of the year, and China Life Insurance Co., Ltd. - China Life Fu Pension Insurance purchased 0.774 billion shares of dividend strategy ETF in the same period. Ping An Insurance (Group) Company of China, Ltd. purchased 0.54 billion shares of dividend strategy ETF with its own funds, and China National Life Insurance Co., Ltd. purchased 0.433 billion shares of dividend strategy ETF...

So, why have the dividend sector, high dividend sector, and treasury bonds performed so strongly this year? It's because the incremental funds are targeting these types of assets.

3

Can the A-share style switch be successful?

Returning to the question at the beginning: Is it time for a style switch in A-shares?

To answer this question, the first key is probably: can the macroeconomic fundamentals reverse in the remaining four months?

If possible, the market's incremental capital ecology will reverse. If not, it means that ETFs and insurance funds are still the largest increment, and focusing on assets favored by national teams and insurance funds may be a more favorable direction.

One notable change is that at the State Council meeting last Friday, it was explicitly stated that patient capital such as insurance funds will be nurtured and strengthened. Institutional obstacles will be removed, assessment mechanisms will be improved, and stable long-term investment will be provided for the capital market and technological innovation.

If there are changes to the accounting standards for insurance funds in the future, the investment scope of insurance funds may expand accordingly. At that time, the investment strategy of insurance funds may not be the same as the first half of the year, and the strategy may shift towards extending bond duration and focusing on dividend holdings.

For ordinary investors, tracking the speeches of insurance industry leaders may be beneficial.

In August of this year, Duan Guosheng, General Manager and Chief Investment Officer of Taikang Asset Management, published a latest article titled 'Duan Guosheng of Taikang Asset: Asset Liability Coordination and Optimized Allocation under Low Interest Rates'. In the article, he mentioned 'preparing for the impact of the accounting standards switch when formulating allocation strategies'.

Firstly, under the new accounting standards, to enhance the consistency of asset-liability evaluation, it is necessary to extend the duration of fixed income assets to match long-term liabilities and reduce financial statement volatility. Secondly, in terms of equity investments, it is important to further diversify investment strategies, introduce dividend portfolios, and pre-reserve OCI strategies for traditional accounts.

Under the call to 'firmly achieve the annual economic target', will there be a new fulcrum?

CITIC Securities believes that a turning point for small-cap stocks is brewing. Overseas uncertainties are gradually decreasing, and domestic policies are expected to strengthen. This may break the valuation pressure caused by negative sentiment. In the short term, there will be marginal improvement signals in September in terms of fundamentals and liquidity: firstly, the semi-annual reports will be released; secondly, the Fed's rate cut expectations for September will be further clarified; thirdly, domestic countercyclical policies are expected to strengthen during the peak season of 'Golden September and Silver October'.