The institution claims that "bottoming out" takes time and also needs to "defend" 3000 points of A-shares

Introduction: Existing institutions have copied the bottom.

Author | Xu Yu from First Financial

On September 21st, the A-share market continued its adjustment trend, with all three major indexes falling together. The trading volume in both markets remained sluggish, and the battle to defend the 3000 point market resumed.

As of the close of the day, the Shanghai Composite Index fell 0.77% to 3084.7 points, approaching the previous low point, with the Shanghai Composite 50 Index falling by about 1%; The Shenzhen Composite Index fell 0.9% to 9981.67 points, breaking the 10000 point mark and reaching a new low in over three years; The ChiNext Index fell 0.99% to close at 1967.61 points, breaking below the 2000 point mark. The total transaction volume between the two markets is 579 billion yuan, roughly equivalent to the previous trading day. Northbound funds sold a net of 4.33 billion yuan and have reduced their holdings for three consecutive days.

Public funds and other buying institutions believe that the main reasons for the recent decline in the market are the outflow of northbound funds, the lack of a main line in the market, and the reduction of positions and hedging by institutions before the National Day holiday.

Institutions reduce positions and avoid risks before National Day holiday

Just a month ago, just as the package of market rescue policies was being launched, the market transaction volume repeatedly exceeded one trillion yuan. For example, on August 29th, the total transaction volume of the Shanghai and Shenzhen stock markets was 1037.105 billion yuan, exceeding one trillion yuan for the second consecutive trading day.

Why has the transaction volume declined so quickly? An analysis by a fund manager suggests that it may be related to the lack of willingness of funds to engage in battles before the holiday, which is also common in the A-share market. According to data from Tonglian, on the last day before the National Day holiday in 2022, the transaction volume between the two cities was only 559.082 billion yuan, also setting a record low for the whole year.

The fund managers mentioned above stated that there were two main reasons for the poor market performance before the National Day holiday in history: firstly, due to factors such as the expiration of reverse repurchase at the end of the third quarter, credit allocation, and special bond issuance, which led to tight funds and a decline in market trading volume; The second concern is that there may be overseas risk events during the short and long holidays, so we will reduce our positions and avoid risks before the holiday.

There was indeed a significant net outflow of funds on the 21st. The net outflow of main funds from the Shanghai and Shenzhen stock markets was 13.926 billion yuan, of which the net outflow of constituent stocks of the Shanghai and Shenzhen 300 Index was 3.774 billion yuan.

In terms of industries, only the four industries of national defense and military industry, communication, and computer have net inflows of funds. The net outflow of funds from the five major industries, including automobiles, mechanical equipment, and food and beverage, all exceeded 1 billion yuan, and the net outflow of funds from pharmaceutical and biological industries exceeded 2 billion yuan.

A group of heavily held institutional stocks have also been abandoned by funds. Four major stocks, including Hanyu Pharmaceutical, Baosteel Group, Yihualu, and Dongfang Wealth, all had net outflows of over 50 million yuan in late trading, while Luzhou Laojiao, Longji Green Energy, and Muyuan Group all had net outflows of over 40 million yuan in late trading.

Liu Youhua, Deputy Director of the Wealth Research Department of Paipai Network, told First Financial reporters that there are several reasons for the low trading volume: firstly, the market lacks confidence and is waiting for more macroeconomic data to verify; Secondly, since the downfall of the AI mainline, there has been no major investment mainline in the market and a lack of profitable effects; Thirdly, the continuous outflow of northbound funds has to some extent affected the enthusiasm of market investors to go long; Fourthly, the impact of pre holiday factors and market concerns about uncertainty during the long holiday period have led to an increase in wait-and-see sentiment.

Market Concerns over the Direction of Federal Reserve Policy

In addition to reducing positions and hedging before the holiday, the fund managers mentioned above stated that the market's biggest concern before this year's National Day holiday is the direction of the Federal Reserve's monetary policy, as inflation in the United States is on the rise.

From the data analysis, WTI oil price broke through 91 dollars/barrel this week, and oil distribution broke through 95 dollars/barrel, achieving three weeks of continuous growth, approaching the highest point in 10 months, which is expected to record the largest quarterly growth since the Russia-Ukraine conflict in the first quarter of 2022. Driven by oil prices, inflation in the United States has rebounded significantly, with the CPI rebounding to 3.7% year-on-year in August. The Federal Reserve held its September interest rate meeting on the 21st local time. Previously, the market was generally expected to not raise interest rates in September, and the focus was on whether to release a signal to "maintain higher interest rates for a longer period of time" after the meeting. If so, it will have an impact on the RMB exchange rate and northbound capital flow, which will have a significant impact on the overall A-share market.

According to the Federal Reserve's interest rate decision released in the early hours of Beijing time on the 21st, the target range for the federal funds rate remains unchanged at 5.25% to 5.5%, which is in line with expectations. But the Federal Reserve has raised its economic, overall inflation, and interest rate forecasts for this year in its quarterly economic outlook, and believes that the job market will continue to be strong. Federal Reserve Chairman Powell said at a press conference that there is still a long way to go to achieve the inflation target. The dot matrix chart shows that the Federal Reserve will raise interest rates again within the year and may maintain higher rates for a longer period of time. Affected by this, US stocks plunged at the end of the day, with the US dollar and US bond yields fluctuating higher, and gold taking back its intraday gains.

Due to the overnight rise of the US dollar, the Chinese yuan fell below the 7.3 level against the US dollar again on the 21st. Although there are some concerns in the market about the direction of the Federal Reserve's policy, CITIC Securities believes that the probability of the Fed not raising interest rates in November is still high, and the first rate cut may be delayed until the second half of next year. In the short term, it is expected that the US dollar index and US bond rates will continue to fluctuate at high levels.

From the perspective of domestic economic fundamentals, CITIC Prudential Fund believes that there has been a gradual improvement in economic data in August, but two of them are relatively poor: real estate data and export data.

According to data from the National Bureau of Statistics, from January to August this year, the investment in real estate development in China was 7690 billion yuan, a year-on-year decrease of 8.8%. Among them, residential investment was 5842.5 billion yuan, a decrease of 8.0%. During the same period, the sales area of commercial housing was 73.949 million square meters, a year-on-year decrease of 7.1%, with residential sales area decreasing by 5.5%. The sales revenue of commercial housing was 7815.8 billion yuan, a year-on-year decrease of 3.2%, including a 1.5% decrease in residential sales.

According to data from the General Administration of Customs, in US dollars, China's export value decreased by 8.8% year-on-year in August, a decrease of 5.7 percentage points compared to the previous month. In August 2022, exports increased by 6.5% year-on-year, a decrease of 10.6 percentage points from the previous value. The lower base in the same period last year was one of the main reasons for the rebound in export growth rate. In RMB terms, China's exports in the first eight months of this year reached 15.47 trillion yuan, an increase of 0.8%.

CITIC Prudential Fund stated that in terms of real estate data, it will take some time for policy effects to become apparent; Export data is to some extent influenced by exchange rate valuation, but when converted, there has not been a very significant decline. Overall, it may still be in a low economic zone.

They believe that whether the stock market can stabilize in the future depends on whether these sufficient conditions can be achieved: whether the "policy bottom" can bring about the "economic bottom" earlier, and whether market sentiment can be reversed. After the appearance of the triple bottom, there may be a rebound or a high probability event.

Bottom copy of some institutional layouts

The A-share market is currently at a historically low percentile, with the P/E ratios of the ChiNext and SME boards at 1% and 3%, respectively.

Lei, the chief research official of Xingshi Investment, told reporters that it can be basically confirmed that the market is currently at the bottom, and a decrease in transaction volume is also one of the characteristics of the bottom. On the one hand, the marginal improvement of the domestic economy. Although market sentiment is weak, the response to the marginal improvement is weak. However, as policy effects become apparent and economic improvement accumulates, quantitative changes will accumulate into qualitative changes, and the market may follow the economy out of the bottom; On the other hand, under continuous adjustments, stock market risks have been released. ERP data shows that the overall cost-effectiveness of A-shares is good, and valuations of various sectors are also at a lower level since 2010.

For the current market, CICC has recently stated that it is actively resolving the main contradictions at the policy level, and the bottom of corporate profits is gradually emerging. Valuation, sentiment, and investor behavior have already shown bottom characteristics. There is no need to be too pessimistic at the current point, and patience is needed during the "bottom grinding period" of the market.

Recently, some institutions have started to bottom out.

Against the backdrop of the A-share decline on the 20th, "bottom hunting" funds are still in reverse layout, with an increase of 4.526 billion ETF market shares against the trend. According to the average transaction price in the range, the net inflow of funds is about 6.2 billion yuan.

Looking at it over the long term, in the first three trading days of this week, the market experienced fluctuations and declines, with ETF fund shares increasing by 10.094 billion against the trend, with a net inflow of approximately 17.495 billion yuan.

From the perspective of capital inflow direction, in these three trading days, the CSI 500ETF was the most favored, with a net inflow of over 4 billion yuan this week under the Southern Group's CSI 500ETF. Combined with related products under Huaxia and Jiashi, the three leading products of CSI 500ETF had a net inflow of nearly 6 billion yuan.

The Sci Tech Innovation 50ETF is also "buying more and more as it falls". Huaxia and E Fund's Sci Tech Innovation 50ETF have a total inflow of over 1.8 billion yuan, although the product decline this week has exceeded 2%.

The CSI 1000 Index is also the main direction of net inflows, with net purchases of over 3 billion yuan by the CSI 1000 ETF under five public funds, including Huaxia and Fuguo.

It is worth noting that in the recent stock market correction, the broad base index of the market has become the main direction for net buying by funds, including dividend strategy ETFs that have also been sought after by funds, demonstrating that under the adjustment of the market, funds prefer to seize the overall investment opportunities of the market through the market wide ETFs.

Fang Lei believes that it takes time to move from the "policy bottom" to the "market bottom". The previously launched package of policies has a positive effect on the recovery of economic momentum, but it is not directly related to the stock market. The market needs to observe the recovery of economic momentum.

"We are currently in the early stages of releasing the effects of stabilizing economic policies. Although the central high-level meeting at the end of July actively adjusted to stabilize growth, the policy was densely implemented in mid to late August. Due to the time lag between policy implementation and actual workload formation, there is not much reflection in the economic data released in August." Fang Lei said, "If we observe the strategic emerging industry purchasing managers' index that is similar to the manufacturing PMI in the medium to long term, the September EMPI recorded 54%, an increase of 5.9 percentage points compared to the previous month, returning to the boom bust line. The month on month increase is stronger than the same period in nearly five years, indicating the initial effect of the policies that were continuously introduced in the early stage. For the market, the continuous improvement of subsequent economic indicators may be beneficial." The correction that drives market expectations