Historical patterns suggest that year-end and early-year markets typically exhibit defensive characteristics, with large-cap value stocks outperforming while small and micro-cap stocks represented by the CSI 1000 index face relative pressure. As the year concludes, institutional investors tend to adopt conservative strategies due to annual performance evaluations and settlements, leading to markedly lower risk appetite.
Entering January, the market enters a peak period for annual earnings pre-disclosures by listed companies, with earnings uncertainty becoming a primary concern. Given the higher volatility risks associated with small and micro-cap stocks, capital further flows toward fundamentally stable large-cap blue chips, reinforcing the large-cap value style. Additionally, long-term investors such as insurance funds demonstrate strong allocation demand during the "New Year rally" phase, favoring undervalued large-cap value sectors and providing incremental funding support.
**Monetary Policy & Interest Rates**: Last week (12/15–12/19), the central bank injected a net CNY 219 billion via open market operations. Over the coming week, CNY 457.5 billion in reverse repos, CNY 300 billion in MLF, and CNY 120 billion in treasury cash deposits will mature. Money market rates declined, with short- and long-term government bond yields falling. NCD issuance expanded, though issuance rates were mixed. As of December 19, R007 rose 0.7 bps, DR007 dropped 2.8 bps, 1-year government bond yields fell 3.3 bps, and 10-year yields dipped 0.9 bps. NCD issuance volume increased by CNY 54.01 billion, with 3M rates rising while 1M/6M rates declined.
**Liquidity Flows**: Secondary market net inflows expanded. Margin balances rose, with net margin buying of CNY 3.42 billion; ETFs saw CNY 56.08 billion in net inflows; and new equity-oriented fund units increased. Major shareholders’ net减持规模 rose, with announced减持 plans expanding.
**Market Sentiment**: Margin trading activity weakened last week, while equity risk premiums declined. Among style indices and major sectors, only consumer staples and discretionary saw relative attention upticks. The VIX retreated, reflecting improved overseas risk appetite.
**Sector Preferences**: Electronics, communications, and power equipment attracted significant net inflows across capital types. Broad-based ETFs were mostly net subscribed, particularly A500 ETFs. Sector ETF flows were mixed, with information technology ETFs seeing subscriptions and defense ETFs experiencing redemptions. The Huatai-PineBridge CSI A500 ETF recorded the highest net subscriptions, while the Fullgoal CSI Defense Leaders ETF saw the highest redemptions.
**Overseas Developments**: Amid government shutdown concerns, U.S. November nonfarm payrolls and CPI fell notably below expectations. On December 18, the BLS reported headline CPI at 2.74% YoY (vs. consensus 3.06%) and core CPI at 2.63% YoY (vs. 3.03%), nearing the Fed’s target. On December 16, the Labor Department reported unemployment rising to 4.6%—the highest since October 2021.
**Risks**: Economic data or policy disappointments; overseas policy tightening exceeding expectations.
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