• 2024-08-02
• Finance
• 110 Comments

Funds' Caution Dampens A-Share Market Activity

The recent fluctuations in China's A-share market have caught the attention of investors and analysts alike. Just a few days ago, on December 4th, 2023, the A-share market experienced a noticeable dip, with the Shenzhen Component Index and the ChiNext Index falling by over 1%. This downward slide was echoed across an astounding 4,300 stocks in total, indicating a cautious sentiment among investors. Data from Wind revealed that a staggering net outflow of 64.04 billion Yuan occurred from the Shanghai and Shenzhen stock exchanges on that day.

Despite these short-term challenges and external economic uncertainties, many analysts remain optimistic about the underlying positive factors that continue to accumulate within the A-share market. There is a prevailing expectation that this period of correction is likely not yet concluded. The resilience of domestic factors, combined with regulatory support, hints at a more stable recovery path ahead.

The market opened lower on December 4th and continued to drift downwards throughout the day. The Shanghai Composite Index, Shenzhen Component Index, ChiNext, and other major indices posted declines of 0.42%, 1.02%, 1.43%, and even 2.20% for the Beijing Stock Exchange's 50 index. By the close of trading, the Shanghai Composite Index ended at 3,364.65 points, while the ChiNext closed at 2,213.41 points.

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The trading volume for the day reached approximately 1.7 trillion Yuan, a decrease of 586 billion Yuan compared to the previous session. The Shanghai market itself saw transactions of 653.47 billion Yuan, while the Shenzhen market accounted for 1,009.66 billion Yuan. Amidst this overall decline, only 981 stocks managed to gain, and just 97 hit their daily limit, leaving an overwhelming majority in the red.

Within the market's various sectors, some areas showed surprising resilience. For instance, the dividend-paying stocks and robotics sectors stood out with notable activity, contrary to the expected downturn. The CSI Dividend Index even managed an uptick of 0.15%, demonstrating a performance better than the overall market. However, the much-watched semiconductor sector opened strong before slipping back down. The Wind Semiconductor Index initially rose over 3% during the day but ultimately closed down by 0.06%.

Sectors with the largest advancements included coal, oil and gas, and household appliances, with respective increases of 2.19%, 1.01%, and 0.74%. Conversely, media, textiles, and personal care experienced pronounced declines, ranging from 2.20% to over 3.21%. Notably, in the coal sector, Baotailong reached the daily limit, while China Shenhua gained more than 4%, with Shaanxi Coal and China Coal Energy both rising by over 3%.

The semiconductor sector revealed divergence in stock performance, with companies like Xinyang Microelectronics and Naxin Micro both climbing by over 10%. Daiwei Co. hit the daily limit, while Chengdu Huawai gained over 8%. However, it wasn’t all positive; Baoming Technology, Zhongke Lanyun, and Jianghua Microelectronics dropped by more than 5% to 6%, illustrating a mixed response within the same sector.

Hugh Jian, chief analyst for the electronic industry at GuoXin Securities, provided insights on the semiconductor sector's current landscape. He pointed out that the formation of a policy bottom is evident in the market, suggesting that hard technology is characterized by both cyclical economic benefits and new productive capacities under the policy shift aimed at stabilizing growth and adjusting structures. He noted that while the semiconductor sector experienced substantial growth recently, it primarily reflects a correction of prior mispricing amid liquidity risks. Valuations in the electronic sector remain at historical lows, implying potential for recovery. As interest in semiconductor-related ETFs grows, a positive cyclical momentum may emerge for index components, prompting a more optimistic outlook for semiconductor trends moving forward.

In terms of overall market direction, despite the recent fluctuations, the medium-term trajectory seems to favor upward movement. On December 4th, the capital flow was characterized by a cautious sentiment. Wind data highlighted a net outflow of 64.04 billion Yuan across the two main stock exchanges, with blue-chip indices like the CSI 300 witnessing an outflow of 12.94 billion Yuan. There were 1,664 stocks that saw inflows, while an overwhelming 3,439 experienced net outflows of capital.

Among the various sectors, only oil and gas, steel, and coal recorded net inflows of 1.01 billion, 335 million, and 252 million Yuan respectively. The computing, electronic, and electrical equipment sectors faced the largest outflows, reflecting a transitional phase amidst broader market adjustments.

Since September 25, the A-share market has enjoyed a consistent performance, marked by trading volumes exceeding 1 trillion Yuan across 46 consecutive trading days, reflecting abundant market liquidity.

According to Wei Wei, chief strategy analyst at Ping An Securities, a suite of incremental policies is beginning to yield observable outcomes, suggesting a gradual improvement in the economic fundamentals. He cautioned, however, that while external risks may exacerbate market volatility in the short term, internal positive factors continue to strengthen. The market's medium-term trajectory aligns with upward movements, spotlighting vital economic guidelines and counter-cyclical policies presented in significant meetings going forward. The focus remains squarely on policy support and industrial transformation, particularly in sectors indicative of new productive forces, such as TMT (technology, media, and telecommunications,) and national defense industries, as well as high-end manufacturing in automobiles and machinery.

Adding to this sentiment, Zhang Chi, chief strategy analyst at Guojin Securities, emphasized that the short-term market adjustments appear to be driven primarily by emotional factors. He advocated for a return to the "rebound" logic of the market, driven by improved cash flows for local governments, enterprises, and household sectors, along with their corresponding asset and liability repairs. With fundamental support maintaining upward momentum, the current round of market rebounding is anticipated to continue beyond the near term and potentially extend into February of next year.