GTHT has released a research report stating that the recent market adjustment is attributable to two primary factors. First, inflation risks and expectations of financial tightening; second, a loosening in the market's micro-trading structure. The impact of micro-trading disruptions is not expected to be prolonged, and blindly selling off at the current levels is inadvisable. The Chinese stock market is anticipated to approach a significant bottom and a potential entry zone.
Although inflation risks have yet to peak, it is important to recognize the strengths of Chinese assets, including improvements in technological productivity, a relatively stable security environment, and a sound economic, social, and capital market framework. China's diversified energy reserves and varied growth drivers are considered scarce even from a global perspective. China's supportive accommodative stance, coupled with its diversified reserves and growth, can help break the prevailing risk narrative more swiftly.
The main viewpoints of GTHT are as follows: The Chinese stock market is expected to form an important bottom and entry point, with stability as the foundation and confidence being the key. While the Shanghai Composite Index has fallen below a critical level, and although the declines in the CSI 300 and ChiNext indices have been modest, the market divergence is actually substantial. The average adjustment for all A-shares is close to 9%, with the CSI 1000 index dropping by 10%.
The recent market correction stems from two causes. Firstly, inflation risks and anticipations of financial contraction. The uncertain trajectory of US-Iran relations has triggered significant energy-led inflation, subsequently sparking concerns about financial tightening. Secondly, there has been a deterioration in the micro-trading structure of the stock market. Although external conflicts do not directly impact China in a logical sense, the uncertain outlook has reduced market risk appetite. The recent synchronous decline in both stocks and bonds, coupled with narrowing floating gains and expanding losses for "fixed-income plus" products, has imposed investment constraints on institutions with relatively rigid liabilities and higher positions established since the beginning of the year.
The impact of these micro-trading disruptions is projected to be short-lived. Engaging in panic selling at current levels is not recommended, as the Chinese stock market appears poised to establish a significant bottom and entry zone. While inflation risks persist and await their peak, one must acknowledge the advantages of Chinese assets: enhanced technological productivity, a relatively stable security situation, and a resilient economy, society, and capital markets. China's diversified energy reserves and multifaceted growth model represent稀缺 attributes globally.
How will the risks of energy shocks and financial tightening expectations be priced in? The evolution is expected to proceed through three stages: expectation shock, reality shock, and a return to growth logic. During recent roadshows, some investors expressed profound concern regarding energy price shocks and the prospect of financial tightening. A key historical reference is the performance of US stocks in 2022 amidst the Russia-Ukraine conflict and several substantive Fed rate hikes; despite volatility, they demonstrated remarkable resilience and rebounded, avoiding collapse.
Risk pricing generally unfolds in three phases. Phase One: Expectation Shock. From March to June 2022, the Russia-Ukraine conflict erupted, oil prices surged, and the Fed initiated substantial rate hikes in the same month, leading to a decline in US stocks. Phase Two: Reality Shock. After June 2022, although the conflict continued, its intensity did not escalate further, oil prices began to retreat from highs, and risk pricing essentially concluded. However, due to sticky inflation and ongoing Fed hikes, US stocks largely experienced a period of rebound and fluctuation. Phase Three: Return to Growth Logic. Starting in January 2023, positive developments in the US AI industry, driven by increased capital expenditure and improving earnings, propelled the stock market higher. This process yields two insights regarding market pricing: 1) Risk pricing does not require the complete resolution of the risk, but rather concludes when the intensity of the risk ceases to increase. 2) After risk pricing ends, the crucial factor is whether the market itself possesses inherent growth capacity.
Currently, the US may exhibit a higher tolerance for inflation, while the People's Bank of China has emphasized its supportive monetary stance. Stronger certainty regarding accommodative policies in China, combined with increased technological investment and stable domestic demand, can help dismantle the risk narrative more rapidly.
Sector Comparison: Finance and stable sectors remain the preferred choice. Chinese tech manufacturing and stable domestic demand are key to countering stagflation risk narratives. 1) Finance and Stable Sectors: These act as crucial stabilizers for the market, with high dividend yields offering allocation value. Recommendations include: Banks, Electric Utilities, Expressways, and Coal. 2) Tech Manufacturing and Energy Transition: Chinese capital goods and equipment companies with global competitiveness and cost advantages benefit from energy shocks and the transition. Recommendations include: Electrical Equipment, New Energy Vehicles, and Construction Machinery. AI offers vast potential, and China's increased tech investment by 2026 is expected to accelerate the growth of domestic supply chains. Recommendations include: Semiconductors, Communication Equipment, and Machinery Equipment. 3) Domestic Demand Value: Policy measures aimed at stabilizing investment, coupled with a potential rebound in inflation, are likely to stimulate inventory replenishment demand. Recommendations include: Building Materials, Construction, Hotels, and Consumer Staples.
Thematic Recommendations: 1. Energy Transition: Geopolitical conflicts disrupt key energy supplies, while policies focus on building a new energy system and future energy sources. Favorable outlook for Power Grids, New Energy Storage, and Nuclear Fusion Energy. 2. Computing-Power Synergy: Integrating computing power, electricity, and source-grid-load-storage systems. Optimistic on Computing Infrastructure, Grid Digitalization, and Green Power-Computing Operators. 3. AI Model Globalization: Chinese large language models lead in global usage volume. Positive on Large AI Models, AI Data Centers, and Domestic Computing Power. 4. Commercial Aerospace: Developing aerospace into a emerging pillar industry. Bullish on the industrial chain for Medium-to-Large Rocket Manufacturing and Launch Services.
Risk Warning: Overseas economic recession exceeding expectations, and global geopolitical uncertainty.