Play with Smile Investment: CSI 300

Analysis of recent market hotspots

Recently, the National Bureau of Statistics released GDP data for the first quarter of 2024, and the GDP in the first quarter of 2024 increased by 5.3% year-on-year, indicating that the economic recovery is obviously improving. What are the main reasons for the higher-than-expected GDP growth?

Real GDP in the first quarter was 5.3%, which was indeed more than expected in terms of data. In terms of drivers, we believe exports, investment and industrial production have outperformed expectations. Among them, the cumulative year-on-year growth rate of industrial added value above designated size in the first quarter reached 6.1%, and from a structural point of view, the upstream petrochemical chain and non-ferrous metals performed relatively strongly, and the midstream manufacturing and production represented by automobiles and electronics were also relatively strong. In terms of investment, manufacturing investment performed well, with a growth rate of 9.9% in the first quarter, of which the growth rate of manufacturing investment in high-tech industries was even higher, with 11.4%; In addition, the overall growth rate of infrastructure also provided good support, with a growth rate of more than 8% in the first quarter. Historically, there has been a positive relationship between the performance of manufacturing and exports, and the performance of exports in the first quarter was better than the market had previously expected.

Recently, the State Council issued the "Several Opinions on Strengthening Supervision and Preventing Risks and Promoting the High-quality Development of the Capital Market". Since the "Opinions" contain nine parts, it is called the "National Nine Articles", and it is also a capital market guidance document issued by the State Council again after the two "National Nine Articles" in 2004 and 2014. What impact will the new "National Nine Articles" have on the capital market?

We believe that the promulgation of the "National Nine Articles" will have a far-reaching impact on the capital market. The core content of the "National Nine Articles" includes several aspects, the first is to strengthen the implementation of the whole life cycle supervision of listed companies, and the second is to strengthen the supervision of relevant financial institutions and transactions to guide medium and long-term funds; Finally, there is a comprehensive supporting mechanism guarantee, and all parties form a joint force. In the long run, the press conference of the new "National Nine Articles" will accelerate the healthy and high-quality development of the capital market, and improve the quality of listed companies is conducive to protecting the legitimate rights and interests of investors, especially small and medium-sized investors, promoting the efficient and stable operation of the capital market, boosting market confidence, and improving the efficiency of the capital market to help the development of the real economy.

In the medium term, we believe that there are two main impacts of the "National Nine Articles". The first is to increase the financing requirements and guide the entry of medium and long-term funds into the market, which will help the market center as a whole. In the first quarter of 2024, the scale of A-share financing will only be 110 billion, which is significantly lower than the level of the same period in history. The measures to guide medium and long-term funds into the market are conducive to more incremental capital entry, so from the perspective of the supply and demand of stock market funds, we believe that the market center will have some upside. Second, measures such as emphasizing high-quality development and cracking down on illegal and illegal thinking are expected to promote the market's aesthetic return to high-quality companies, with stronger profitability and stronger operating barriers, and companies that can share corporate growth dividends with investors will be favored by more funds.

From a micro perspective, a number of listed companies have released performance forecast data for the first quarter of 2024, and the net profit attributable to the parent company of most companies in the first quarter is expected to exceed the level of the same period last year. What do you think?

It is true that the operation of many enterprises in the first quarterly report is actually relatively bright, on the one hand, there is the impact of domestic economic stabilization and structural improvement, and on the other hand, there is also the impact of foreign demand to improve domestic enterprises going overseas. Looking forward to 2024, we believe that the profitability of A-shares will improve to a certain extent compared with 2023, mainly because due to the adjustment of the economic structure in 2023, many listed companies will face some difficulties in stages, which is reflected in the continued weakening of PPI under the condition of weak demand at the macro level, and the increase in income of some manufacturing enterprises without increasing profits at the micro level. However, in 2024, on the one hand, the domestic economy is expected to stabilize and improve, and on the other hand, recent overseas data also show that demand has picked up, and the stabilization of aggregate demand is likely to improve the profitability of listed companies. Judging from the first quarterly report, some companies have achieved relatively bright results by going overseas to obtain overseas orders, and we believe that this trend may continue.

In addition to the year-on-year increase in profits of many listed companies in the first quarter, from the perspective of dividends, more than eighty percent of listed companies that have disclosed their 2023 annual reports have thrown cash dividend plans. The new "National Nine Articles" just explained also put the strengthening of the supervision of cash dividends of listed companies in a prominent position. How does this affect our investments?

We believe that the nine articles of the state encourage listed companies to pay dividends is a good thing for small and medium-sized investors. We know that as a stock investor, the income of holding a part of the equity of a listed company mainly comes from the reinvestment of profits by the company to create higher returns in the future and to return to shareholders in the form of dividends. When the macro environment is friendly and there are more good investment opportunities, we hope that the management of the company will reinvest the profits, so that we can share more profits as investors in the future. However, at a time when the global geopolitical risk center is rising and good investment opportunities are becoming scarcer, it is also a good way to return corporate profits to investors through dividends. In fact, a small number of A-share companies have adopted a high-dividend profit distribution policy before, and more and more companies have been doing the same in the past two years. For investment, we must first welcome companies in the mature stage and do not have large capital expenditure needs to pay more dividends, especially the current valuation of A-shares is at a low position, and many companies consider the return rate of dividends is actually very attractive; Secondly, in the future, we will pay more attention to the sustainability of dividends, and good earnings quality is an important prerequisite for continuous dividends, so we will also consider more investment opportunities in high-quality companies with dividend potential.

In addition to macroeconomic data and micro entities, the Fed's movements have also attracted the attention of many investors. In April, the Fed released the minutes of its March FOMC meeting, which showed that the FOMC expects inflation to return to 2% in the medium term, indicating that it remains confident in inflation. In your opinion, what kind of interest rate policy will the Fed adopt during the year?

At the beginning of the year, professional institutional investors, including many international investment banks, believed that the Fed would cut interest rates at least three times this year, but in fact, we have recently observed that the expectation of rate cuts has dropped to two. We understand that the biggest difference between the current round of the US economy and the Fed's interest rate hike cycle and history is that the US economy is still resilient on its own, and when the time comes, the economy and inflation will become more resilient by significantly expanding fiscal stimulus. So far, we have observed that the fiscal stimulus in the US is still strong, and it is expected that the stimulus will not weaken significantly in an election year, so this will make it much more difficult to judge the pace of the decline in the US economy and inflation. For now, we recommend observing the performance of the US economic and inflation data in Q2, as the US Treasury Department's bond issuance guidance shows that fiscal stimulus in Q2 is relatively small, and a weaker economic and inflation data may lead to an upward trend in interest rate cut expectations, while if the data remains strong, rate cut expectations may move further back.

CSI 300 Introduction

After 3 years of market adjustment, the current market style is improving in terms of valuation level and profitability level.

In terms of policy, the implementation of the new "National Nine Measures" has gradually clarified the framework of the new round of "1+N" policy system in the capital market, and the focus of reform has shifted to the investment side, focusing on improving the quality of listed companies and investor returns, and consolidating an important foundation for the medium- and long-term healthy development of China's capital market.

In terms of transaction popularity, the proportion of trading volume/market value and the average daily turnover rate of the CSI 300 compared with all A have rebounded to a certain extent since bottoming out at the end of 23, and although there has been a certain decline recently, it is still significantly higher than the previous low. From the perspective of continuity, combined with the experience of the previous market outperformance stage, the recovery of indicators such as transaction heat and turnover rate is not a straight line rising process, but a continuous rise in multiple shocks, so it is still necessary to continue to observe the changes in the trading heat and turnover rate of the market. In addition, Article 9 of the new country has made comprehensive and systematic provisions on the supervision of quantitative trading, and the fees for high-frequency trading will increase in the future, and the frequency reduction of quantitative strategies may become a trend.

From a fiscal point of view, the central government's fiscal authority is expected to be strengthened, and the listed companies of central enterprises will receive greater support and space. From the perspective of the market value distribution of listed companies, the market value of central enterprises is generally larger, and in the context of the central government's fiscal expenditure capacity is expected to be further strengthened, more leading companies of central enterprises in the future, as well as chain lengths and leading enterprises in the industry may benefit more.

When it comes to broad-based indices in the broad market style, many investors' first impression is the CSI 300 Index, can you briefly introduce the CSI 300 Index?

The CSI 300 Index (code: 000300) is composed of the 300 most representative securities with large scale and good liquidity in the Shanghai and Shenzhen markets, and was officially released on April 8, 2005 to reflect the overall performance of the securities of listed companies in the Shanghai and Shenzhen markets. As of April 23, 2024, the total market capitalization of the CSI 300 Index is 50.43 trillion yuan.

What are the characteristics of the CSI 300 Index's industry distribution and main constituent stocks? Can you tell us about it?

The CSI 300 Index is evenly distributed by industry and has strong resistance to cyclical fluctuations in the industry. According to the distribution of Shenyin Wanguo's primary industries, the top five sub-sectors are banking (12.47%), food and beverage (11.66%), non-bank finance (9.16%), power equipment (8.35%) and electronics (8.25%), with a total weight of 49.89%.

As of April 23, 2024, the median market capitalization of the constituent stocks was RMB80.8 billion, and the average market capitalization was RMB168.1 billion. The weight distribution of the index is reasonable, and the weight concentration of the top 10 constituent stocks is 22.16%. The constituent stocks basically include the leading companies in various segments of the A-share market, which can reflect the overall performance of the leading listed companies with large market capitalization in the A-share market.

As of April 23, 2024, the dynamic P/E ratio of the CSI 300 Index is 11.65x, which is at the historical quantile of 26.63% since the index was listed. The price-to-book ratio is 1.26x, which is at the historical quantile of 3.87% since listing, and the index valuation is generally at a relatively low historical level.

What is the current weighting of the CSI 300 Index, industry prosperity and development expectations?

For the banking industry, the continuous interest rate cuts and the increasingly serious "asset shortage" have a significant negative impact on bank operations, and the further release of repricing pressure in the first quarter may lead to a further narrowing of the industry's interest rate spreads, but at the level of equity allocation, the continuous decline in the risk-free interest rate has also made the value of banks' quasi-fixed income allocation based on high dividends further highlighted. The average dividend yield premium of the banking sector over the 12-month risk-free rate, as measured by the yield on 10-year Treasury bonds, is at a historically high level, and continues to widen, and the attractiveness of dividends continues to increase. For the full year, the recovery of residents' consumption propensity and risk appetite is still worth looking forward to, which will be a catalyst for the recovery of earnings and valuations in the banking sector.

For the liquor industry, from a policy perspective, the new "National Nine Articles" were issued, paying more attention to investor protection and shareholder returns, and strengthening the supervision of cash dividends of listed companies. As a long-term high-quality asset, the liquor sector has a stable business model, a deep moat, stable cash flow and a high dividend payout ratio, and a certain valuation premium. From a fundamental point of view, April is still in the off-season of the industry, and most wine companies are focusing on market construction and consumer cultivation. At the end of April, the liquor sector entered the performance verification stage. Overall, as a high-quality asset for pro-cyclical trading, the liquor sector has passed the low point of fundamentals, and the sector may have strong valuation protection under the policy support.

CSI 300 Investment Mystery: Regular Investment of Funds

At present, the PE (TTM) of the CSI 300 is at the level of 30% since the base day, and its overall profitability is also relatively prominent. Investors who pay attention to large-market investment opportunities and want to package the CSI 300 with one click, what kind of ways can they invest in the CSI 300?

ETF is a convenient way for ordinary investors to invest in broad-based indices such as CSI 300 with one click, and it is recommended that you invest in CSI 300 in the form of regular investment ETFs.

Why are ETFs a convenient way for ordinary investors to invest in the stock market? Can you give investors a science about what an ETF is? What are the advantages of ETFs?

ETF, or Exchange-Traded Fund, is a type of securities investment fund that is listed and traded on a stock exchange. It combines the characteristics of traditional mutual funds and stocks, providing investors with a convenient and flexible investment tool. Here are some of the key features of ETFs that explain why it's a convenient way for the average investor to invest in the stock market:

Higher liquidity: ETFs are listed and traded on exchanges, and investors can buy and sell ETFs during any trading hours during the trading day, just like trading stocks, providing higher liquidity
Lower management fees: ETFs have relatively low management fees compared to traditional mutual funds
High transparency: ETF holdings are usually public, and investors can clearly know the assets held by the ETF, which increases the transparency of investment
Close tracking: ETFs usually require that no less than 90% of the fund's assets be invested in the constituent stocks of the underlying index and alternative constituents to achieve close tracking of the target index

Why is it recommended to invest in CSI 300 by means of regular fund investment?

Regular fund investment refers to the fund investment in the form of automatic deduction with a relatively fixed period and amount, which is a wonderful method of "lazy investment". The core principle is that the share of buying at a high price is small, and the share of buying at a low price is large, and the unit cost is amortized in market fluctuations. Regular investment of funds can be purchased in batches to amortize costs, accumulate shares, and once the net value of the fund returns to above the average cost line, it can make a profit, and investors vividly compare this process to a "smile curve".

So what kind of fund is suitable for regular investment? We believe that funds with the following characteristics are more suitable for regular investment:

Long-term prospects: The final income of regular investment comes from the long-term growth of the fund, and when choosing the fixed bid, you can pay attention to the target with more room for growth
There is a certain fluctuation: the function of amortizing the cost cannot be effectively played in the fund with small fluctuations, and the fund with a certain fluctuation is more suitable for regular investment. Therefore, equity funds are more compatible with fund regular investment
Clear representativeness: The selected fund should preferably have a strong representative target in a certain market or sector, which can avoid investment style drift in the long process of regular investment

The CSI 300 Index contains 300 stocks with large scale and good liquidity in the A-share market, representing the core part of the A-share market. And the host just mentioned that the PE (TTM) of the CSI 300 is currently at the level of 30% since the base day, and its overall profitability is also more prominent. Investors who pay attention to large-market investment opportunities and want to package CSI 300 with one click can invest in CSI 300 in a regular investment way.

CSI 300 as a fixed bid, what are its advantages? Can you tell us more about it?

The CSI 300 Index has a wide coverage, a relatively balanced industry allocation, and a high market representativeness. Moreover, from a long-term perspective, the A-share market as a whole is long-term upward, so the prospect of regular investment in the CSI 300 Index is promising. In addition, the CSI 300 has a certain degree of volatility, which is more consistent with the characteristics of the fund's regular investment. Finally, the current CSI 300 has a low PE level and good overall profitability, making it a better choice for investment targets.

What type of investors are suitable for regular fund investment?

Regular investment funds are suitable for most investors, especially the following types of investors:

Ordinary office workers: have no time to keep an eye on the market, and have no energy to study individual stocks, and fund regular investment can better solve this investment problem. There is no need to choose the time and automatically deduct the payment, which is a "lazy investment" method
Financial management: The fund generally starts at 10 yuan, the investment threshold is low, and it can also solve the problem of choosing the right time, saving worry and effort
Those who want to reduce investment risks: participate in regular investment and buy in batches, which can better diversify investment risks
People with long-term financial planning: such as preparing children's education funds, pensions, etc., start early, choose the right fund, and small accumulation may eventually become wealth that plays a key role

Risk Warning: The fund manager promises to manage and use the fund assets in good faith, diligence and due diligence, but does not guarantee that the fund will be profitable, nor does it guarantee the minimum return. When purchasing a fund, investors should read the fund's fund contract and prospectus and other legal documents in detail to understand the specific situation of the fund. The performance of other funds managed by the Fund Manager and the past performance achieved by its investment staff are not indicative of their future performance and do not constitute a guarantee of the performance of the Fund. Caution should be exercised when investing in funds.