A review of the market shows that over the last four trading sessions (April 3rd to April 9th), major indices mostly closed higher. The Shanghai Composite Index rose by 1.20%, while the ChiNext Index gained 4.75%. In terms of market style, the CSI 300 Index increased by 1.95%, and the CSI 500 Index advanced by 3.86%. Trading volume expanded, with the combined turnover for the two markets reaching 7.84 trillion yuan during the period. The average daily turnover was 1.96 trillion yuan, an increase of 36.41 billion yuan compared to the average of the previous five trading days. Sector-wise, most primary sectors classified by Shenwan closed higher. The Communications, Electronics, and Machinery & Equipment sectors led the gains, while the Banking, Pharmaceuticals & Biotechnology, and Utilities sectors experienced declines.
On the policy front, the Federal Reserve released the minutes from its March monetary policy meeting on April 8th. The minutes included discussions concerning the impact of the geopolitical situation on the U.S. economy, inflation, the labor market, and monetary policy.
Regarding the effects on economic activity, participants incorporated only a modest impact into their forecasts, judging that the direct economic consequences from equity market declines and rising crude oil prices due to geopolitical conflicts would be limited.
Concerning inflation, participants anticipated that rising oil prices would push inflation higher in the short term and delay its descent. They also noted that if geopolitical conflicts persist, sustained high energy prices could potentially translate into core inflation. On the labor market front, most participants expressed concerns that prolonged conflicts, by eroding household purchasing power through high oil prices and tightening financial conditions, could lead to a further softening of the labor market. Overall, both upside risks to U.S. inflation and downside risks to the labor market have increased. In this context, monetary policy will continue to be adjusted nimbly based on incoming data, the evolving economic outlook, and the balance of risks.
Some participants indicated that if geopolitical conflicts lead to increased downside risks for the labor market, it could prompt further interest rate cuts. Conversely, some participants supported including "two-sided" language in the post-meeting statement, suggesting that rate hikes might be necessary if inflation persists above target levels. This indicates a widening divergence of views within the Fed.
In summary, influenced by geopolitical conflicts, the timing for further easing of overseas liquidity conditions is likely to be pushed back.
Strategically, the resolution path of geopolitical events continues to influence overall market risk appetite. Uncertainty surrounding related developments will continue to cause disturbances during the market recovery process. Regarding market strategy, we maintain the view presented in the quarterly report: "stability" is the key emphasis of current capital market policies. Under the expectation that "stability" is the ultimate goal, long-term returns will stem from the ability to allocate assets within a stable environment. Capturing directions with growth prospects will be the primary source of return generation. In an environment aimed at achieving stability, alpha returns come from timing opportunities in non-steady-state market conditions. The process of the market reverting from a non-steady state to a steady state will create additional returns for investors bold enough to participate against the trend.
At the sector level, although geopolitical risks retain an element of uncertainty, the phase of highest risk may largely be over. This presents right-side allocation opportunities at the sector level. Considering the upcoming intensive period of earnings disclosures in the short term, focus can be placed on areas with fundamental support. First, investment opportunities in the computing power sector are highlighted, driven by price increases across multiple segments, expectations for supercomputing cluster construction, and rising demand for computing power due to the gradual adoption of AI Agents. Second, opportunities exist in the Power Equipment and Pharmaceuticals & Biotechnology sectors, supported by the export-driven growth narrative.
Risk warnings: Sector catalysts may fall short of expectations, and geopolitical risks persist.
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