Text: Wang Mao, senior editor of Tsinghua Financial Review
The A-share market was closed during the May Day holiday, Hong Kong stocks were like a rainbow, and China's assets rose sharply, mainly due to three factors: the consideration of safety by foreign funds; the low valuation of Hong Kong stocks and A-share blue chips; and the recovery of the mainland economy. For a long time to come, these three factors will play a positive role in promoting the appreciation of Chinese assets.
As of May 3 (last Friday), the Hang Seng Index rose more than 4%, the FTSE A50 rose more than 2%, and the US stock Nasdaq China Golden Dragon Index rose more than 8%.
The sharp rise in China's assets during the May Day period was mainly affected by three factors: the consideration of safety by foreign funds; the low valuation of Hong Kong stocks and A-share blue chips; and the recovery of the mainland economy. For a long time to come, these three factors will play a positive role in promoting the appreciation of Chinese assets.
First, overseas funds are out of consideration for security. The introduction and passage of the Asian American Subdivision Act has attracted widespread attention and controversy in the market. After the bill was introduced, funds that were originally transferred to the United States began to flow back. Wealthy Chinese-Americans in the United States fear that their wealth is at stake. Many wealthy people choose to transfer their funds to the mainland, Hong Kong, Singapore and other places. This dynamic directly contributed to the rise of the RMB exchange rate, and the US dollar fell to 7.17 yuan against the yuan at one point.
Recently, many Asian currencies such as the Japanese yen, Vietnamese dong, South Korean won, Indonesian rupiah, and Indian rupee have fallen sharply, while the stable exchange rates of the Hong Kong dollar and RMB have caused a large number of overseas funds to flow into Hong Kong stocks and A-shares as a safe-haven. Hong Kong stocks are particularly popular because foreign capital can flow freely into Hong Kong.
In addition, there have been clear signs of easing in U.S.-China relations recently, so foreign capital will continue to flow in. Since the beginning of 2024, northbound funds have had a net inflow of US$10.3 billion into A-shares, exceeding the US$8.1 billion in 2023, and the inflow has accelerated recently.
Second, the valuation of Hong Kong stocks and A-share blue chips is low. Low valuations are key to the attractiveness of China's stock market. At present, the valuation of Hong Kong stocks is about half that of the Japanese stock market, and the valuation of A-share blue chips is more than 20% lower than that of the Japanese stock market, and the dividend yield is higher than that of the Japanese stock market. At the same time, it should be noted that China's economic growth rate is much higher than Japan's. Compared with the U.S. stock market, the valuation of Hong Kong stocks and A-shares is much lower, and the dividend yield is higher.
Goldman Sachs, the world's leading investment bank, is optimistic about the Chinese stock market and believes that the Chinese stock market will usher in a big market under the background of China's economic recovery. Goldman Sachs pointed out that if A-shares can close the gap with the global average in terms of shareholder returns, then A-shares will rise by 20%, and if they can reach the world's leading level, A-shares will rise by 40%.
Third, the mainland's economy has picked up somewhat. According to the website of the National Bureau of Statistics, preliminary calculations show that the mainland's GDP in the first quarter of 2024 will be 296299 billion yuan, a year-on-year increase of 5.3% at constant prices and a quarter-on-quarter increase of 1.6% over the fourth quarter of last year. The mainland's GDP growth target for 2024 is around 5%.
At the same time, a number of policies have been launched to boost the real estate market, and recently, the property market in Beijing, Shanghai and Shenzhen has been substantially good.
On April 30, the Beijing Municipal Commission of Housing and Urban-Rural Development issued a notice on optimizing and adjusting the city's housing purchase restriction policy. Shanghai joins the "trade-in" queue for commercial housing. On May 3, the Shanghai Real Estate Industry Association and the Shanghai Real Estate Brokerage Industry Association jointly proposed to launch the "old for new" activity for commercial housing in Shanghai, which will facilitate residents to replace their houses through the "old for new" model. In response to the recent market news that after the "May Day", Shenzhen will cancel the purchase restriction policy in areas other than Futian and Nanshan, and at the same time cancel the value-added tax for 5 years, and the news that it can be exempted after 3 years.
As the real estate market gradually stabilizes, a new round of growth begins, which is a big positive for Chinese assets. At present, there are "Davis double-click" opportunities for investment in Hong Kong stocks and A-shares. At present, the valuation of Hong Kong stocks and A-shares is low, and the mainland economy is ushering in a recovery, under this circumstance, the prospects for Chinese assets are promising.
On May 6, the first trading day of A-shares after the May Day holiday, the three major stock indexes closed up across the board, with the Shanghai Composite Index up 1.16% to 3,140.72 points, the Shenzhen Component Index up 2.00% to 9,779.21 points, and the ChiNext Index up 1.98% to 1,895.21 points. Northbound funds bought a net of 9.316 billion yuan.
This article is edited by Wang Mao
Editor-in-charge丨Ding Kaiyan, Lan Yinfan
Preliminary trial丨Xu Lanying
Final Review丨Zhang Wei
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