China Merchants Securities (CMSC) released a research report stating that the trend of RMB appreciation, coupled with the historical pattern of foreign capital positioning for A-shares' year-end and new-year rallies during this period, suggests that foreign capital is expected to see phased net inflows in the short term, contributing incremental funds. The inflow of foreign capital is relatively favorable for the large-cap style of A-shares. Historically, margin financing often weakens in the latter half of January, while insurance funds typically see net inflows at the beginning of the year. Overall, the market in January is more likely to exhibit a pattern of structural incremental fund inflows, which is expected to help A-shares continue their upward trend and further develop the "spring offensive." At the style level, large-cap stocks are recommended. The main views of CMSC are as follows.
The characteristics of various fund flows in January over the years show that insurance and foreign capital usually position themselves at the start of the year, while margin financing tends to be weaker towards the end of January. The trend of RMB appreciation, combined with the historical window for foreign capital to position for A-shares' cross-year performance, indicates that foreign capital is expected to contribute incremental funds through phased net inflows in the short term. This inflow is more conducive to the large-cap style of A-shares. Historically, margin financing often weakens in the latter half of January, whereas insurance funds mostly see net inflows at the beginning of the year, which benefits the large-cap style of A-shares. Overall, the market in January is more likely to present a pattern of structural incremental fund inflows, potentially aiding A-shares in sustaining their upward trajectory and continuing the spring rally, with a style recommendation favoring large-caps.
Regarding monetary policy and interest rates, during the past week (Dec 29-Dec 31), the central bank conducted a net injection of 700.9 billion yuan via open market operations. In the coming week, reverse repurchases totaling 1,323.6 billion yuan and 60 billion yuan in treasury cash deposits are set to mature. Money market rates declined, while short and long-term government bond yields rose. The issuance scale of negotiable certificates of deposit (NCDs) decreased, and their issuance rates fell across the board. As of December 31, the R007 decreased by 7.4 basis points, and the DR007 fell by 9.5 basis points. The 1-year government bond yield increased by 4.5 basis points, and the 10-year government bond yield rose by 0.5 basis points. NCD issuance scale dropped by 419.62 billion yuan, and the rates for 1-month, 3-month, and 6-month NCDs all declined.
In terms of fund supply and demand, the net inflow of trackable funds into the secondary market expanded. Margin balances decreased, with net selling by margin financing funds amounting to 2.27 billion yuan; ETFs experienced a net outflow of 3.35 billion yuan; and the share amount of newly established equity-oriented public funds decreased. Net减持 by major shareholders increased, while the announced planned减持 scale decreased.
Market sentiment last week showed weakened trading activity by margin financing funds and a decrease in the equity risk premium. The turnover rates for various style indices and major industry sectors generally declined. The VIX index rebounded, indicating a decline in risk appetite in overseas markets.
Regarding market preferences, in terms of sector favoritism, non-ferrous metals, defense & military industry, and household appliances attracted relatively high net inflows from various types of funds. Broad-market ETFs were predominantly net redeemed, with the SSE 50 ETF seeing the highest redemptions. Sector ETF subscriptions and redemptions were mixed, with Materials ETFs receiving more subscriptions and Military Industry ETFs experiencing more redemptions. The fund with the highest net subscription was the ChinaAMC CSI A500 ETF, while the ChinaAMC SSE 50 ETF had the highest net redemptions.
Overseas developments saw US Q3 GDP exceeding market expectations, while the December ISM Manufacturing Index fell to 47.9. US third-quarter GDP grew by 4.3% year-on-year, surpassing market expectations, primarily driven by household consumption and AI-related infrastructure investment, indicating continued short-term economic resilience. Foreign trade provided some support for growth, but corporate investment growth slowed significantly compared to the second quarter. Meanwhile, the December ISM Manufacturing Index continued to decline to 47.9, remaining in contraction territory for the 10th consecutive month, indicating weak demand in the manufacturing sector.
Risk warnings include economic data and policies falling short of expectations, and overseas policies tightening more than anticipated.
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