Key Points
- China’s A-share market indices saw weekly gains, with the ChiNext Index (Chuàngyè Bǎn Zhǐ 创业板指) jumping 1.38%.
- Major institutions anticipate continued oscillatory movements in Q2, with risk controllable due to the Stabilization Fund (Píngzhǔn Jījīn 平准基金) support.
- Several firms highlight the technology sector as a relatively cost-effective and promising area for medium-term investment.
- New public fund regulations and the introduction of floating fee rate funds are expected to lead to greater diversification and a focus on large-cap stocks aligned with benchmarks.
- Some analysts believe the market may be in a consolidation phase before a potential index breakout around July-August, possibly driven by policy or monetary easing.
A-Share Market Indices Performance (Recent Week)
- Shanghai Composite Index (Shàngzhèng Zhǐshù 上证指数): +0.76%
- Shenzhen Component Index (Shēnzhèng Chéngzhǐ 深证成指): +0.52%
- ChiNext Index (Chuàngyè Bǎn Zhǐ 创业板指): +1.38%
What’s cookin’ in the Chinese stock market?
It’s been an interesting week, and if you’re an investor, founder, techie, or marketer eyeing Chinese tech and trends, you’ll want to lean in.
Let’s break down what the big players are saying about where things might be headed next.
Market Snapshot: How Did We Do This Week?
First things first, a quick look at the scoreboard:
- The Shanghai Composite Index (Shàngzhèng Zhǐshù 上证指数) climbed 0.76%.
- The Shenzhen Component Index (Shēnzhèng Chéngzhǐ 深证成指) saw a 0.52% rise.
- And the ChiNext Index (Chuàngyè Bǎn Zhǐ 创业板指) jumped 1.38%.
Not bad, right? But the real question is, what’s on the horizon for the A-share market?
We’ve dived into the latest investment strategies from ten major institutions. Here’s the lowdown, no fluff, just insights.
Shenwan Hongyuan Strategy (Shēnwàn Hóngyuán Cèlüè 申万宏源策略): Stabilization Fund & Tech’s Mid-Term Play
- China-US Trade Murmurs: After the China-US Geneva economic and trade joint statement, the medium-term outlook for A-share fundamentals hasn’t drastically shifted. A-share profitability isn’t expected to skyrocket within the year, so a major upward breakout seems unlikely for now.
- Q2 Pulse: However, there’s a silver lining. A shift from “grabbing re-exports” to “grabbing exports” in Q2, plus timely domestic loose monetary policy in May, could give fundamentals a pulse-like improvement.
- Safety Net Activated: The Stabilization Fund (Píngzhǔn Jījīn 平准基金) is throwing strong support behind capital market expectations. This means the downside risk for the A-share market is pretty controllable.
- Valuation Check: Heads up! The short-term cost-effectiveness of low-valuation, high-dividend assets (especially those benefiting from public fund reform) is looking a bit thin.
- Tech is a Go: Compared to consumption, technology remains a relatively cost-effective direction. Any dips in tech? That could be your cue for a medium-term position.
- Hot Sectors: They’re still strategically bullish on investment opportunities in the domestic AI industry chain and Embodied AI (Jùshēn Zhìnéng 具身智能).
- Pharma Shines: Pharmaceutical & Biotechnology (Yīyào Shēngwù 医药生物), particularly CXOs and Innovative Drugs (Chuàngxīnyào 创新药), showed strong Q1 performance and remain a solid medium-term recommendation.
CITIC Strategy (Zhōngxìn Cèlüè 中信策略): Clearing Up Fund Rule Confusion & Benchmark Rethink
- Benchmark Evolution: Looking at how things work overseas, reverting to benchmarks usually means the benchmark’s industry allocation influences fund portfolio allocation, not the other way around.
- Client Focus Aligns: Shifting product investment strategy back towards client profit orientation doesn’t clash with chasing rankings and absolute returns in the long run – it actually aligns with it.
- Penalty Power: The penalty for underperforming the benchmark? It ultimately pushes funds to reduce speculative positions. The biggest long-term impact will be a decrease in the proportion of active positions.
- Benchmark is Key: How do you effectively set benchmarks? That’s the million-dollar question for achieving client interests, winning the competitive game, and not getting replaced by passive products.
- Current Benchmarks Limited: For active equity products, indices like the CSI 300 Index (Hùshēn 300 沪深300), CSI 800 Index (Zhōngzhèng 800 中证800), and CSI A500 Index (A500 A500) have significant limitations as benchmarks for the whole market.
- New Benchmark Needed: A truly reasonable benchmark for Chinese assets, one that reflects the New Quality Productive Forces (Xīnzhì Shēngchǎnlì 新质生产力) and new economic trends, should have a balanced Hong Kong-A share allocation. The proportion of Hong Kong broad-based indices in the total benchmark is a big deal, beyond just industry allocation.
- Foreign Capital Factor: If foreign capital starts flowing back in, the market ecosystem will look very different from the past three years. Don’t look at industry allocation with a static, rearview mirror perspective.
- Good vs. Bad Companies: The difference between good companies and bad companies will become far more important than the difference between so-called “good industries” and “bad industries.”
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Orient Securities Strategy (Xīngzhèng Cèlüè 兴证策略): China vs. US Active Investing – A Different Ballgame
- Don’t Force Comparisons: Comparing China’s active equity development directly to the US might be misleading.
- Confidence in China’s Active Investing: We should actually have more confidence in the future of active investing in China.
- The Key Difference: Here’s the kicker: US active equity funds have long struggled to outperform the index. The longer the timeframe, the more likely they lag.
- China’s Edge: For Chinese active funds, it’s often the opposite. The longer the time duration, the higher the proportion of funds that outperform the index. This is a crucial distinction.
China Merchants Securities Strategy (Zhāoshāng Cèlüè 招商策略): Floating Fee Funds & April Data Impact
- Floating Fee Funds Arrive: The first batch of 26 managers have officially reported new model floating fee rate funds. This follows the public fund reform plan.
- Whole Market Stock Pickers: These are all funds that select stocks from the entire market, primarily benchmarking against mainstream broad-based indices. This signals that fee reform is now in the operational phase.
- Mainstream Trend: With leading institutions launching these products, the demonstration effect is expected to make floating fee rate funds a mainstream choice among active equity products.
- Social Financing Up: April social financing saw a significant year-on-year increase.
- Structure & Demand: Okay, the financing structure wasn’t perfect, and there was a bit of a shortfall in demand for physical financing. But, with fiscal policy staying actively and proactively engaged, the deployment of fiscal funds and project landings should bring demand growth.
- Historical Precedent: Historically, when total social financing growth hits levels like we’re seeing now, A-share performance is generally not poor – often involving an oscillating upward movement.
- Central Bank’s Move: In April, the central bank’s “claims on other financial institutions” shot up. This might be linked to providing liquidity support to Central Huijin (Zhōngyāng Huìjīn 中央汇金).
- Huijin the Stabilizer: Looking ahead, Central Huijin will continue to be a market stabilizer, ready to step in if the market gets too choppy. This means downside risk for A-shares is controllable, with support at the bottom.
- Upward Trend Expected: Once the pressure from short-term profit-taking eases, A-shares are expected to return to an oscillating upward trend.
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GF Securities Strategy (Guǎngfā Cèlüè 广发策略): What Clients Are Asking About Public Fund Reforms
- Benchmark Reversion Impact: If we do a simple calculation assuming full reversion to the benchmark, sectors like Non-Banking Financials, Banking (Yīnháng 银行), and Public Utilities (Gōngyòng Shìyè 公用事业) might see the largest net purchases. The gap (benchmark allocation minus actual allocation) is 7.9%, 6.9%, and 3% respectively for these sectors.
- Short-Term Reality: However, hold on. Specific implementation details haven’t been released yet. The recent rise in these “underweight sectors” is mainly driven by expectations from other market funds about how public funds *might* invest in the future. It’s not because public funds have actually made significant position changes yet.
- No Major Shift Yet: Data shows that the R-squared between the average 5-day return of 偏股型基金 (piān gǔ xíng jījīn – equity-oriented funds) and benchmark returns has fluctuated in the past. The degree to which benchmark returns explain the performance of these funds hasn’t significantly changed. This suggests that a large number of equity-oriented funds haven’t recently shifted towards their benchmarks in a big way.
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Zhongtai Securities Strategy (Zhōngtài Cèlüè 中泰策略): Post-Geneva Negotiations – What’s Next?
- “East Ascends, West Declines” Narrative: The short-term narrative of “East Ascends, West Declines” gets a boost, and risk appetite is temporarily on the mend.
- Proactive Statement: The statement from the Geneva meeting was active and proactive in its form and timing.
- Underlying Issues Remain: However, content-wise, neither China nor the US mentioned the existing structural issues. China also explicitly maintained its rare earth export control policy.
- China-Driven Pace: It seems the pace of this round of China-US negotiations was more driven by China. This was likely against the backdrop of the Trump administration’s unexpected tariff policy escalations, a tense US domestic election situation, and pressure on the US stock market, leading to a temporary concession from the US side.
- “Stop the Bleeding”: While these talks didn’t tackle deep structural problems, the temporary “stop the bleeding” mechanism is enough to effectively alleviate market pessimism about external shocks. This is expected to boost investor risk appetite in the short term.
Huajin Securities Strategy (Huájīn Cèlüè 华金策略): Short-Term Upward Swings, Tech Takes Center Stage
- Loose Liquidity Ahead: Liquidity is likely to stay loose for a bit.
- First, the US is still in a potential interest rate cut cycle.
- Second, with domestic economic growth facing significant pressure, domestic monetary policy is likely to remain loose short-term.
- Stock Market Inflows Improving: Capital inflow into the stock market might continue to get better.
- Financing has flowed back for two consecutive weeks and could increase further.
- Global market risk appetite has risen due to significant tariff reductions between China and the US in the short term, possibly leading to more foreign capital flowing into A-shares.
- Risk Appetite Support: Tariff reductions and proactive domestic policies are expected to keep supporting short-term risk appetite.
- The significant China-US tariff reductions exceeded market expectations and are a short-term stimulus for risk appetite.
- Ongoing introduction and implementation of proactive domestic policies continue to bolster market sentiment.
- Tech is the Main Theme: Keep an eye on tech!
Huajin Securities Short-Term Catalysts
- Loose Liquidity (Potential US rate cuts, domestic pressure)
- Improving Stock Market Inflows (Financing flow-back, potential foreign capital from tariff reduction)
- Risk Appetite Support (Exceeded expectation tariff reductions, proactive domestic policies)
- Technology as Main Theme
Guohai Securities Strategy (Guóhǎi Cèlüè 国海策略): Cracking the Code of Index Breakouts & Dominant Styles
- Historical Breakouts: Since 1999, the A-share market has seen three typical index breakout periods where the Shanghai Composite Index (Shàngzhèng Zhǐshù 上证指数) shifted from prolonged oscillation to break upward and form a higher point center. These happened in:
- May 1999
- Late 2014
- Mid-2020
- Common Traits of Breakouts: These breakouts shared common characteristics: loose liquidity, a positive policy tone, and significant catalysts in reform, technology, or finance. Interestingly, economic fundamentals didn’t necessarily need to show a clear upturn during the breakout.
- Pre-Breakout Consolidation: In the period before a breakout (like a month to a quarter prior), consumption and stable styles often dominated.
- During the Breakout: When the breakout happened, strong beta styles like financials and technology took the lead.
- Current Situation: Since “924” last year (perhaps referring to September 24th?), the Shanghai Composite has been oscillating in the 3000-3400 point range. Despite a bumpy external environment, domestic policy responses have been appropriate, and the commitment to protecting the stock market is clear.
- Breakout Possibility: Currently, the possibility of an index breakout needs to be taken seriously. We might be in the consolidation period right before such a breakout.
- Driving Force (Qūdònglì 驱动力): The catalyst for a future index breakout is more likely to come from policy support or monetary easing.
- Timing?: The timing could be around July-August.
- Strategy Before Breakout: Until then, market styles will rotate quickly, mainly adopting a barbell strategy.
- Strategy During Breakout: During the breakout, focus on brokers and technology.
Zheshang Securities Strategy (Zhèshāng Cèlüè 浙商策略): Riding the Waves: Adjust Structure, Control Drawdowns
- Rebound Momentum: As the market continued its rapid rebound, most major indices for A-shares and Hong Kong stocks have surpassed levels seen before the comprehensive tariff war on April 3rd.
- Resistance Ahead: Many indices are now near resistance levels after filling gaps. They also face pressure from dense overhead supply and short-term profit-taking.
- “Active Adjustments” Expected: Expect the market to continue with “active adjustments.” This means it will digest pressure from concentrated chips at higher levels and short-term gains through oscillatory consolidation.
- Allocation Advice: Based on the view that the “rebound is complete and consolidation is starting, oscillating within a range to digest pressure,” they recommend:
- Continue to adjust your current portfolio structure.
- Switch from technology and growth sectors (which have seen big rebounds) to large financials, companies with “China” in their name (Zhōngzìlóu 中字头), and high-dividend sectors. The goal is to smooth the net value curve and control portfolio drawdowns.
- Buy the Dip Opportunity: If external negative factors push the index down again, they advise acting decisively and actively increasing positions during a rapid decline.
Zheshang Securities Strategy: Adjusting to Market Oscillation
- Market status: Rapid rebound completed, consolidating within a range.
- Expected movement: Oscillatory consolidation to digest pressure.
- Allocation Recommendation: Adjust current portfolio structrure.
- Recommended Shift: From Technology/Growth to Large Financials, Zhongzitolou, High-Dividend Sectors.
- Goal of Shift: Smooth net value curve, control portfolio drawdowns.
- Action on Dips: Act decisively, actively increase positions if external factors cause a rapid decline.
Soochow Securities Strategy (Dōngwú Cèlüè 东吴策略): New Fund Regs – Short, Medium, & Long-Term Impacts
- Product Evolution: From a product perspective, active equity funds may gradually evolve into “index-enhanced” like products.
- Inevitable Adjustments: Under the new assessment rules, adjustments to fund portfolio structure are an inevitable trend.
- Strategy Shift: Strategies that previously relied on betting on high-beta sectors to snag excess returns will likely transform. They’ll move towards a core allocation system centered around benchmark indices. This means about 60%-80% of positions will closely track the benchmark index. The remaining positions will be used to capture excess returns through refined stock selection.
- Large-Cap Focus: Currently, active equity funds benchmarking against large-cap broad-based indices account for over 70%.
- Mainstream Appeal of Large-Cap Benchmarks: Thanks to the characteristics of such indices – “strong market representation + relatively balanced industry distribution + synergistic ecosystem between active and passive products facilitating capital resonance” – they may continue to be mainstream in the future.
- Increased Diversification: To align with the benchmark, the degree of diversification in public fund allocation is expected to increase.
- Manager Focus: It’s anticipated that managers will focus on improving coverage of large-cap stocks with high index weights.
Investing in the China A-share market requires a keen understanding of these evolving dynamics, from the crucial role of the Stabilization Fund to promising tech sector opportunities.
Soochow Securities: Impacts of New Public Fund Regulations
- Product Evolution: Active equity funds likely to become “index-enhanced” like products.
- Portfolio Adjustments: Inevitable under new rules.
- Strategy Transformation: Shift towards core allocation around benchmarks (60-80% tracking), excess returns via stock selection.
- Current Large-Cap Focus: Over 70% of active equity funds benchmark against large-cap indices.
- Large-Cap Benchmarks Mainstream: Expected to continue due to strong representation, balanced distribution, synergistic ecosystem.
- Diversification: Expected to Increase to align with benchmarks.
- Manager Efforts: Focus on improving coverage of high-weight large-cap stocks.
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