China's assets have become "fragrant and sweet", where are the investment opportunities under the ultra-fast rotation of the sector?

Interface News

2024-05-16 11:59Posted on the official account of Beijing Jiemian News

Interface News Reporter | Dragon power

The single-day net inflow of northbound funds hit a record high, international investment giants have voiced "bullish", the RMB exchange rate has remained relatively stable, and Chinese assets seem to have suddenly become "sweet and sweet".

Why are Chinese assets suddenly sought after by market funds? How to grasp the investment opportunities in the future?

What is the appeal of Chinese assets?

As an important representative of Chinese assets, both the A-share and Hong Kong stock markets have recently ushered in a wave of rapid rise.

Wind data shows that since the intraday dip to the stage low of 2635.09 points on February 5, the Shanghai Composite Index began to rise all the way, as of May 14, the latest closing point was 3145.77 points, an increase of 19.38%; The Hang Seng Index rebounded rapidly after falling to 14,794.16 points on January 22, and has recovered to 19,073.71 points as of May 14, an increase of 28.93%.

Chart: The performance of the Shanghai Composite Index and the Hang Seng Index

Data source: Wind, interface news

For Zhang Yinshan, a veteran value investor, it is not surprising that Chinese assets have been unanimously bullish recently, "after all, the fundamentals are enough to support, and the valuation is cheap enough", these two points are the first factors to consider when making investment decisions, whether for domestic investors or overseas investors, or institutional investors or individual investors.

As early as 2023, when the Shanghai Composite Index fell below 2800 points, Zhang Yinshan judged that the market was already full of gold pits, and began to add up the positions.

Talking about the reasons why domestic and foreign investors have been bullish on Chinese assets recently, many other private equity people interviewed by Jiemian News reporters invariably mentioned two factors: the domestic economy is improving and the overall valuation of Chinese assets is low.

Since 2024, the mainland has taken a series of policy measures to promote economic growth and market stability, including fiscal stimulus, monetary easing and structural reforms, which will help enhance investor confidence. In terms of market construction, the continuous opening up and reform of the mainland's capital market, such as the Shanghai-Hong Kong Stock Connect and the Shenzhen-Hong Kong Stock Connect, as well as the continuous relaxation of foreign investment restrictions, have lowered the threshold for foreign investment and increased the liquidity and attractiveness of the market.

Jiemian News compared the GDP growth rate of China, the United States and the world since 1980, it can be clearly seen that China's GDP growth rate has been much higher than that of other countries in the world, although in recent years due to the large base, global economic downturn and other factors have fallen, but the relative advantage is still very obvious.

Chart: GDP growth in China, the United States, and globally

Data source: Wind, interface news

With the disclosure of China's economic data in the first quarter of this year, Goldman Sachs, Citigroup, Morgan Stanley, UBS, Deutsche Bank and many other well-known foreign institutions have also raised their expectations for China's economy. Among them, Goldman Sachs raised China's GDP growth rate in the first quarter to 5.0% year-on-year from the previous value of 4.5%, and China's full-year GDP growth forecast for 2024 was also revised upward to 5.0% from the previous value of 4.8%, and Morgan Stanley raised China's real GDP forecast for 2024 to 4.8% from the previous estimate of 4.2%.

In terms of valuation, the advantages of Chinese assets are equally prominent.

Chen Xingwen, chief investment officer of Blacksaki Capital, believes that compared with other major stock markets in the world, the valuation level of the A-share market is relatively reasonable, providing attractive investment opportunities for international capital seeking value investment. The Hong Kong stock market also has a number of listed companies with high dividends and low valuations, which tend to provide stable cash flow and high dividend returns.

Jiemian News compared the average P/E ratios of CSI 300, S&P 500 and the main board of the Hong Kong Stock Exchange in recent years, and the data shows that except for the bull market period in 2015, the P/E ratio of CSI 300 has been much lower than that of S&P 500.

Chart: P/E ratios of major indices in China and the United States

Data source: Wind, interface news

Jiemian News further compared the difference between the S&P 500 and the CSI 300 and the main board of Hong Kong stocks (that is, the S&P 500 P/E ratio - CSI 300 P/E ratio and the S&P 500 P/E ratio - the P/E ratio of the main board of Hong Kong stocks), the data shows that the difference between the S&P 500 and the CSI 300 and the main board of Hong Kong stocks is widening, although it has fallen from the peak of 20 in 2021, the difference is still as high as 15.

Chart: The valuation difference between the S&P 500 and the CSI 300 and the main board of Hong Kong stocks

Data source: Wind, interface news

What is the market outlook for A-shares?

With the recent rise of A-shares, Zhang Yinshan's previous foresight has now been richly rewarded, according to his disclosure, the previous position around 2800 points has now had a floating profit of nearly 30%.

At the same time, although he has gained a lot, Zhang Yinshan still continues to be optimistic about the follow-up market of A-shares, "At present, the market has only reached 3100 points, and this round of market is still in a state that has just started." ”

Bao Xiaohui also feels that the market must be full of hope, in his opinion, the A-share market stood at 3100 points, rebounding nearly 20% from the bottom in February, which indicates a great recovery of investors' confidence in the market, and different from the previous fluctuation mode of the A-share rise, the most obvious feature of this round of rise is its comprehensiveness, which is also an important indicator to judge the follow-up market.

In fact, funds from all walks of life have been actively running into the market recently.

Wind data shows that since late January this year, the cumulative net purchase amount of northbound funds has begun to rise steadily after bottoming out, and is still in an upward trend. Not long ago, the net inflow of northbound funds was 22.449 billion yuan on April 26, setting a new record for the amount of net inflows in a single day since the opening of the Mainland-Hong Kong Stock Connect.

Chart: Northbound capital flows

Data source: Wind, interface news

Xingshi Investment pointed out that at present, global institutions are still significantly underweight China's equity assets, and the inflow of foreign capital may be at an early stage. In the short term, the top-up transaction of foreign capital on Chinese assets is expected to form a positive cycle of "foreign capital inflow-asset price increase-foreign capital inflow of underweight Chinese assets", and in the long run, the repair of domestic economic fundamentals, domestic reform expectations, and overseas liquidity shift are also expected to provide momentum for foreign investors to increase their holdings of Chinese assets.

Private placement is also actively increasing positions, private placement network data shows that as of April 26, the stock private placement position index was 79.01%, following last week's increase of 0.21%, and this is the third consecutive week that the stock private placement index rose.

Since February 8, the stock private position index hit a new low in the year, the stock private position index has maintained a rising momentum, the average value of the stock private position index from January to April was 78.70%, 76.39%, 77.31%, 78.69%, and the latest position index is a new high in the past 13 weeks, only slightly lower than the level at the beginning of the year, up 3.77% from the low point of the year. Judging from the recent trends in private equity positions, the intention of private placements to actively increase positions is very obvious.

Chart: Index of private equity positions in the past year

Data source: Private placement

However, despite the same belief that Chinese assets have investment value, not everyone has made as much money as Zhang Yinshan.

Li Jie, an ultra-short-term investor, is one of them, who has been bullish on A-shares since the Spring Festival and has increased his position by a large proportion, but in fact he has "earned the index, but not the money". Compared with the highlight moment when the monthly income doubled, Li Jie said, "It's hard to say that the current market is particularly good."

According to Li Jie, many of his ultra-short-term stockholders are in a similar situation, and even from the data of the Dragon and Tiger List, the frequency of many well-known investors has decreased significantly recently.

As a full-time stock investor for more than ten years, Wei Xiaoyun has been unprecedentedly confused recently, she told the interface news reporter that she obviously increased her position in time at the bottom, but she could only watch the index soar all the way, and her return since the beginning of this year has only barely turned red, which is really uncomfortable.

In fact, even many professional institutional investors have failed to reap the expected gains in the recent rapid rebound of A-shares.

According to the latest statistics of the private placement network, the average income of the 76 domestic private placements with performance display from January to April this year was 1.08%, and the median was -0.03%, far lower than the 5.05% increase in the Shanghai Index 300 Index from January to April this year, and only 35 of them successfully recorded positive returns, accounting for 46.05%.

How to grasp investment opportunities?

With the vigorous rise on the one hand, and the slow increase in the yield on the account, how to grasp the investment opportunities of Chinese assets has obviously become a major problem for many investors.

Recently, Li Jie carefully reviewed the market again and found that the most important reason why his yield could not catch up with the index may be that the pace of rotation between market sectors has been too fast recently.

Sun Qiang, who is a subjective + quantitative fusion strategy, also said that the rotation between the A-share hot plates is indeed much faster than before, and it is easy to get dizzy, which also leads to investors being slightly unable to keep up with the rhythm or stepping in the wrong direction, which is the distance between the big meat and the big surface.

However, due to the special quantitative model to track the performance of various sectors of the market, Sun Qiang's recent earnings are okay, and the overall return has been about 45% since the end of the year.

Jiemian News sorted out the recent rotation of the A-share sector, and the data shows that in the last 10 trading days alone, the disk has rotated in multiple directions.

Chart: The recent rotation of A-shares

Data source: stock selection, interface news collation

Recently, there has been a clear differentiation between the various sectors of A-shares. Wind data shows that with Shenwan's first-level industry classification as a reference, the overall rise and fall of various industries this year and in the past 120 days has been significantly differentiated, of which the year-to-date increase in the home appliance industry is as high as 23.27%, while the year-to-date increase in the computer industry is only -16.32%.

Chart: The recent performance of the A-share Shenwan primary industry

Data source: Wind, interface news

So where exactly are the investment opportunities in Chinese assets?

In Bao Xiaohui's view, China's assets mainly include A-shares, Hong Kong stocks, Chinese concept stocks, RMB bonds, RMB cash and real estate and other different assets, which can be simply divided into four types of stocks, bonds, foreign exchange houses, etc., which include four kinds of Chinese assets with different liquidity, as far as he is concerned, he pays more attention to the performance of the capital market, that is, stocks and bonds.

As far as the stock market is concerned, Li Chi, chairman of Tongwei Investment, said that A-shares and Hong Kong stocks have their own characteristics and advantages. The A-share market may be more affected by mainland policies and market sentiment, while the Hong Kong stock market is more international and more affected by global capital flows. In terms of investment strategies, investors may need to adopt different investment strategies according to the different characteristics of the two markets, for example, A-shares may pay more attention to policy-oriented and domestic demand-driven investment opportunities, while Hong Kong stocks may pay more attention to the impact of global macroeconomics and international capital flows. Of course, it is fundamentally necessary to pay attention to the current and future profitability of the enterprise, which is the same.

In terms of investment direction, Chen Xingwen is optimistic about the main subdivisions of new energy vehicles and clean energy, scientific and technological innovation, consumer goods, low valuation blue chips, artificial intelligence and new energy vehicles.

Bao Xiaohui believes that AI technology, high-end medical care, high-interest state-owned enterprises and other fields are in line with the trend of China's economic transformation and upgrading, and have great growth potential.

Li Chi is mainly optimistic about three areas: first, the upstream resource industry, which benefits from the Fed's interest rate cut expectations and the trend of anti-globalization; The second is the direction of new quality productivity, such as new energy vehicles, artificial intelligence, etc., domestic history has repeatedly proved that specific industries will achieve rapid development with the support of policies; Finally, industries and companies that are moving from domestic brands to global brands are likely to achieve rapid growth in exports, leading to high growth.

(Zhang Yinshan, Li Jie, Wei Xiaoyun, and Sun Qiang are pseudonyms in the article)

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