The Shanghai Composite Index fell more than 2% to a three-and-a-half-year low, is "shrinkage and decline" a risk or an opportunity?

Economic Observer reporter Cai Yuekun "If you want to make money from stocks, you must first learn to lose. ”

This line in the recent hit drama "Flowers" has become a "placebo" for A-share shareholders at the beginning of 2024.

On January 17, 2024, the A-share market opened lower and moved lower throughout the day. At the close, the Shanghai Composite Index fell 2.09% to close at 2,833.62 points, the lowest since May 2020, the Shenzhen Component Index fell 2.58%, the lowest since August 2019, and the ChiNext Index fell 3%, continuing to hit a new low since December 2019. More than 5,000 stocks in the two cities fell, and less than 300 stocks rose.

In addition, northbound funds sold 13.057 billion yuan unilaterally throughout the day, a new high since October 2022, of which 6.372 billion yuan were sold through Shanghai-Hong Kong Stock Connect and 6.684 billion yuan were sold through Shenzhen-Hong Kong Stock Connect.

From the perspective of turnover, Wind data statistics show that on January 17, 2024, the cumulative turnover of A-shares was 649.323 billion yuan, a decrease of 48.1 billion yuan from January 16.

A person from a fund company in Beijing observed that under the current market, the sentiment of domestic and foreign investors is relatively sluggish, and at the same time, the high yield of US bonds has prompted low enthusiasm for foreign capital allocation, which will cause further outflow of foreign capital.

In the face of the current market situation, a private equity founder has chosen to "lie flat" and wait for the market to reverse.

Trading volume is sluggish

Since 2024, as of January 17, the cumulative turnover of the A-share market has been less than 700 billion yuan in 8 of the 12 trading days, down more than 30% from the high point in the first half of 2023.

According to Wind statistics, the reporter found that from July 2023, the cumulative turnover of the A-share market will decline. In the first half of 2023, the cumulative turnover of A-shares on some trading days has exceeded one trillion yuan consecutively, and since July, the cumulative turnover of most trading days has hovered between 700 billion yuan and 900 billion yuan, and the trading days exceeding one trillion yuan are in single digits.

Behind the decline in turnover is the continuous decline of the major A-share stock indexes. After peaking on February 18, 2021, A-shares have entered a long downward channel for more than two years. Looking back on the whole of 2023, most of the major A-share stock indexes closed in the red. The dismal start of the stock market at the beginning of 2024 has made investors "break their defenses".

On January 17, Ms. Cao, a personal investor in Beijing, held a leading photovoltaic stock, with a book loss of nearly 20%. She bought the stock in the second half of 2023 and joked that she was "copying the bottom halfway up the mountain". Many friends around Ms. Cao who speculate in stocks are similar to her, and most of their stock investments so far in 2023 are in a state of loss.

Not only did many investors suffer losses, but many fund investors were not spared. According to the reporter's statistics, in 2023, the active equity funds (excluding the sub-new funds established in 2023, the same below) will not make good money, with an average annual return of -12.01%, and the annual return of passive index funds will not be satisfactory, with an average return of -8.62%.

Looking back on the whole year of 2023, most of the major A-share stock indexes closed down, among them, the Shanghai Composite Index fell 3.7% for the whole year to close below 3,000 points, the Shenzhen Component Index fell by 13.54%, the ChiNext Index fell by 19.41%, the largest decline, the Shanghai Composite 50 Index and the CSI 300 Index were negative for three consecutive years, and the Beijing Stock Exchange 50 Index rose sharply in the fourth quarter, rising 14.92% for the year.

This year, investors once again experienced the apprehension and hesitation of the Shanghai Composite Index falling below 3,000 points.

"Repetitive" northbound funding

Wind data shows that entering 2024, northbound funds will still show a net outflow trend, with a cumulative outflow of 25.51 billion yuan year-to-date.

In the past three months, the cumulative outflow of northbound funds was 65.378 billion yuan, and in the past six months, the cumulative outflow was 175.814 billion yuan.

Debang Securities said that the crux of the current capital is mainly in northbound funds: the outflow margin of northbound funds that the market is more concerned about will decrease in November 2023, and the outflow scale will increase in December 2023. The net outflow of northbound funds in November 2023 was RMB1.777 billion, a significant decrease from the net outflow of RMB44.787 billion in October 2023. Northbound capital outflows have been repeated, and the inflows have yet to be reversed.

From the perspective of the whole year of 2023, according to the statistics of Wanquan Zhice, since 2017, with the continuous increase in the weight of A-shares in the MSCI China Index, the scale of foreign holdings in A-shares has also continued to increase, and this trend inflow has become an important factor affecting the A-share ecology. Even when the market fell sharply in the fourth quarter of 2018, foreign investors were able to continue to increase their positions against the trend during the decline. Different from previous situations, since July 2023, the "policy bottom" and "economic bottom" of A-shares have appeared one after another, and the market has also remained low, northbound funds have continued to flow out. In the 40 trading days from August 2 to September 28, there was a net outflow of northbound funds in 31 trading days, with a cumulative net outflow of 132 billion yuan.

Wanquan Zhice said that in the fourth quarter of 2023, the net outflow of northbound funds also exceeded 78 billion yuan, and the total net outflow has exceeded 210 billion yuan. This figure is far higher than the previous historical extreme. The continuous trend outflow of foreign capital is a major change in the A-share ecosystem, and it will take time for domestic investors to adapt to this change.

However, from the perspective of the whole year of 2023, northbound funds will still be in a state of net buying throughout the year, with a cumulative net purchase of 43.7 billion yuan, a decrease of 46.3 billion yuan compared with 2022, which is the 10th consecutive year since the opening of the Mainland-Hong Kong Stock Connect.

From the second half of 2023, why will there be a net outflow of northbound funds? Great Wall Securities analysis said, first, the overall performance of the traditional preference industries of foreign capital is weak, and the global competitiveness of new advantageous industries is weak. Second, the overall performance of the Chinese market throughout the year was poor, which dragged down the enthusiasm for foreign capital allocation. In 2023, the Chinese market's excess return relative to the world will be the second lowest since 2016, and it has been negative excess return for three consecutive years. The continued sluggish market performance and the recent weak economic data may be one of the reasons for the continued buying of foreign capital. Third, the U.S. dollar exchange rate and high U.S. Treasury yields have suppressed foreign capital inflows. Fourth, geopolitical disruptions continue to affect the certainty of foreign investment.

Investors are waiting for their time

Seeing the shrinking assets of the stock account, new investors regret that they "went the wrong way", those who have insisted for a long time say "I can't stand it", and those who buy more and more fall even blur their "faith" in investment.

A private equity fund manager in the southern region, in a sluggish market, waiting for the good signals of the macro economy, as well as the news of further interest rate cuts by the central bank, waiting for the opportunity to increase positions.

Will interest rates or RRR cuts be cut in early 2024? The market is waiting for the "signal" from the central bank.

On January 15, 2024, the People's Bank of China (PBOC) launched an open market reverse repo operation of 89 billion yuan and a medium-term lending facility (MLF) operation of 995 billion yuan, with interest rates remaining unchanged at 1.8% and 2.5% respectively. Because 779 billion yuan of medium-term lending facilities expired in January, the continuation of the 995 billion yuan increase made the market's expectations for RRR and interest rate cuts disappointed.

In the view of the above-mentioned private equity fund managers in the southern region, equity assets are risky, and for now, he will choose to allocate some fixed income bonds, such as the relatively stable urban investment bonds.

Zeng Hao, general manager of the first equity investment department and investment director of the first equity investment department of Bosera Fund, said that the performance of A-shares and Hong Kong stocks in 2023 has been significantly weaker than that of overseas stock indexes since the beginning of 2023, and the core contradiction behind it is that the post-epidemic recovery of domestic growth since April 2023 is weaker than expected at the beginning of the year, while the resilience of overseas growth is stronger than expected.

Zeng Hao believes that although the current market is still divided on the policy effect and the elasticity of economic recovery, the emergence of the bottom of the profit and the government's re-increase in leverage basically confirm that the current market has entered the bottom range, and in 2024, the market is expected to get out of the shock upward market.

In the view of Huang Jun of Bank of China Fund, the overall performance of the stock market in 2023 will be poor, and the performance of the bond market will be relatively good. Valuations in the stock market are relatively low at the moment. In 2024, we should not be overly pessimistic, but should actively look for structural opportunities. In the near term, we are optimistic about related industries with strong earnings resilience and high dividend yields. In addition, Huang Jun believes that pharmaceutical companies that benefit from the aging of the population and going overseas are also worthy of attention.