Zhike | With the economy picking up in the fourth quarter, is the A-share market about to take off?
Author | Huang Yida
Editor | Zheng Huaizhou
Last week (October 14th - 18th), the A-share market fluctuated with significant volatility. The Shanghai Composite Index rose by 1.36% during the period and closed at 3262 points on October 18th; the Wind All A Index showed even greater volatility, surprisingly increasing by 3.10% in the volatile market last week.
In terms of sectors, 28 out of the 31 first-level industries in Shenwan rose last week. Among them, the computer, electronics, military industry, media, and communication sectors led the gains, while the food and beverage, petrochemical, and coal sectors declined last week.
From a style perspective, the A-share technology sector was clearly dominant last week, while large-cap stocks were relatively lackluster. Reflecting on the performance of style indices and broad-based indices, the Beijing Stock Exchange 50, STAR Market 50, STAR Market 100, ChiNext Index, CSI 1000, and Guozheng 2000 led the gains. The CSI 300, SSE 50, CSI A50, and CSI Dividend Indexes had relatively smaller gains or declines.
In the Hong Kong stock market, the Hang Seng Index declined by 2.11% last week, and the Hang Seng TECH Index dropped by 2.86%. In terms of sectors, among the 12 Hang Seng industry indices, only the raw materials and information technology sectors rose last week. Among the remaining 9 industry sectors, the consumer staples, consumer discretionary, healthcare, and energy sectors had relatively larger declines.
In terms of overseas major asset classes, most major stock indices in Europe and the United States rose last week, while major stock indices in Japan and South Korea declined. In the commodity market, precious metals and base metals mostly rose last week, while iron ore and rebar declined; most agricultural products declined; and crude oil had a significant decline. The US Dollar Index rose last week.
Chart: Weekly Changes in Major Global Asset Classes; Source: Everbright Securities, 36Kr
01 Can the GDP Achieve a Quarterly Growth of 10.3% in the Fourth Quarter?
This week, there are many macroeconomic data. These data reflect past issues, and the market has fully anticipated them, which will not change the current expectations. The important aspect is the directions indicated by the data structure.
First, looking at the most important economic data, the GDP in the third quarter increased by 4.6% year-on-year, and the cumulative GDP in the first three quarters increased by 4.8% year-on-year. In fact, the market had already expected the economic situation in the third quarter. The high-frequency data from multiple dimensions such as finance, inflation, and foreign trade all pointed to a significant bottom in the third-quarter economy. The asset prices, including stocks and bonds, have also relatively fairly reflected the economic fundamentals.
If the economic growth target of 5.0% for the whole year is to be achieved, with a GDP of only 4.6% in the third quarter, a strong effort is needed in the fourth quarter. According to the seller's calculation, the quarter-on-quarter growth rate of the GDP at constant prices in the fourth quarter should at least reach 10.3%, and the corresponding year-on-year growth rate is about 5.4% to achieve the 5% target. From historical data, if the GDP in the fourth quarter reaches 10.3%, it will be second only to 2020 in the past 10 years. 2020 was the year with the most severe impact of the epidemic. The quarter-on-quarter surge in GDP in the fourth quarter of that year reflected the rapid economic recovery after the epidemic.
Chart: Quarterly-on-Quarter Growth of GDP at Constant Prices in Recent Years; Source: Wind, 36Kr
Therefore, it can be believed that with reasonable policy guidance, it is entirely possible to achieve a GDP quarter-on-quarter growth of 10.3% in the fourth quarter of this year. Moreover, the management has always attached great importance to whether the economic goals can be finally achieved. The package of economic stimulus policies intensively introduced in late September is the determination of the management to achieve this year's economic goals and anticipates a rapid economic rebound in the fourth quarter. The A-share market from September 24th to before the National Day has well reflected the above expectations, while the market performance in the past two weeks is more reflecting investors' concerns about the implementation of policies.
Although the stabilization and recovery of the economy requires a process, the economic data in September showed several highlights in the structure, laying a certain foundation for a rapid economic rebound in the fourth quarter. The economic data in September mainly have the following four highlights:
1. The consumer sentiment shows a marginal improvement. The year-on-year growth of social retail sales in September was better than that in August. The year-on-year growth rate of commodity consumption in September increased significantly compared to August. The core driver behind this is that after the implementation of the "Two New" policies, the consumption of automobiles, home appliances, office supplies, and other products has significantly rebounded. At the same time, the high growth of tobacco and alcohol consumption has also played a key role; the drag from service consumption is not significant.
2. Manufacturing investment has generally stabilized, and investment in high-tech industries and equipment and tools has increased significantly. The cumulative year-on-year growth rate of fixed asset investment from January to September is the same as the cumulative value from January to August. The year-on-year growth rate of fixed asset investment in September is better than that in August, which can be said to have played a certain role in filling the gap. Structurally, driven by industrial and equipment upgrading, investment in high-tech industries and equipment and tool procurement has increased significantly.
3. There has been some improvement in real estate investment. Judging from the changes in house prices in different dimensions, the downward pressure on house prices still exists. Affected by the downward trend in real estate investment, the willingness of real estate enterprises to start construction is not strong, but the completion has slightly improved.
4. Infrastructure investment has marginally improved. With the accelerated issuance of special bonds in September, both the narrow and broad infrastructure investments in September have improved compared to August.
From the perspective of the structure of economic data, affected by the previous policies, the recovery of consumption and manufacturing is relatively better; and real estate remains the focus of policy efforts. Recent high-level meetings and new policies mainly focus on easing financing restrictions for real estate enterprises and stimulating demand. It takes some time for policies to take effect, so the relevant data in September have not yet reflected the changes brought about by the policies. Therefore, real estate is not only the focus of policy attention in the future but also the focus of short-term stock speculation; The weakening role of infrastructure in the macroeconomy is within expectations. After all, infrastructure has played its due role in stabilizing growth in the past few years.
Looking at the financial data in September, the new credit increased significantly month-on-month, but the year-on-year growth was still relatively small and fell short of market expectations. This is because September is the end of the quarter, and banks are under assessment pressure, so they have an impulse to increase credit lending. Therefore, the credit data cannot well reflect the real demand. From the overall structure of social financing, the government sector is still the major contributor, reflecting the fact that the accelerated issuance of special bonds in the economic data has helped improve the marginal infrastructure investment.
02 Investment Strategy
Stimulated by good policies and good expectations, the current market risk appetite has improved significantly. Although the trading volume has declined to a certain extent recently, it is mainly due to the impact of the high-level's policy expectation management. The market adjustment in the past two weeks is also due to this. From the economic goals to policy expectations, the certainty of policy-driven in the fourth quarter is quite high. Moreover, after experiencing the previous turmoil, the market volatility has significantly narrowed, and the market mainline has gradually emerged after the short-term adjustment.
Starting from the structural characteristics of economic data, driven by investment in the manufacturing industry, it is beneficial to the high-tech industry. This is the positive impact brought by policy support. Moreover, the STAR Market itself is experiencing a turnaround from a difficult situation. Previously, the market has already expected the first- and second-level linkage of the STAR Market in early 2025. Then, under the current market risk appetite, it is relatively clear that the STAR Market will become the mainline in the fourth quarter. The current market situation has already reflected this, so attention should be paid to the high volatility caused by over-anticipation.
Another short-to-medium-term investment clue is still to focus on policies as trading hotspots. Recently, the market trading enthusiasm has weakened as investors are waiting to see the implementation of policies. Therefore, the future focus is on one hand, the entry of incremental funds, and on the other hand, the improvement of the industry fundamentals driven by policies, especially in real estate. High-frequency industry data verification is an important opportunity for short-term speculation.
Among the incremental funds, the entry of medium and long-term funds is the basis for a slow bull market. At the same time, it will also cause some entanglement with short-term trading funds, resulting in increased short-term market volatility. This change can be regarded as a process of eliminating the weak. Long-term funds are relatively more inclined to fundamental pricing. Therefore, advanced manufacturing, consumer leaders, turnarounds from difficult situations, and low valuations may be the focus of future market attention.
*Disclaimer:
The content of this article only represents the author's views.
The market is risky, and investment requires caution. Under no circumstances does the information in this article or the opinions expressed constitute investment advice for anyone. Before making an investment decision, if necessary, investors must consult a professional and make a cautious decision. We do not intend to provide underwriting services or any services that require a specific qualification or license for trading parties.