Approaching 3000 points again, where will the A-share market go in the future?

Unconsciously, the A-share market has been adjusting for another month.

From the A-share market in the past two months, the Shanghai Composite Index broke through the volatile range at the end of April and peaked at 3174 points on May 20th, even giving investors hope of breaking through 3200 points at one point. However, from May 20th to present (until 20240620, the same below), the Shanghai Composite Index has once again entered a downward range, during which all industries in the Shenwanwan level, except for power and public utilities, as well as electronics, including chips, have fallen across the board.

Since the beginning of the year, excluding the stock market crash caused by the liquidity crisis of small and medium-sized A-share stocks before the Spring Festival, this round of A-share decline has been particularly long. At the same time, the Shanghai Composite Index has once again experienced a rare "four consecutive negative" weekly candlestick, and the Shanghai Composite Index has once again entered the "3000 point defense battle". It has to be said that 3000 points is a love hate ratio for A-share investors.

Once again approaching the position of 3000 points, where should the A-share market go in the future?

Let's first review why A-shares began a brief bull market in mid to late April. With the 2024 Spring Festival as the milestone, A-shares have entered a stage of policy intensive introduction. With the efforts of the national team's funds to rescue the market, the Shanghai Composite Index has steadily stood above 3000 points. Although there is no official statement, the market generally regards the Shanghai Composite Index at 3000 points as a crucial level. The index cannot remain below 3000 points for a long time, otherwise many funds in the market will have a panic mentality and there may be a risk of a market crash. Therefore, when the index deviates downwards from 3000 points, there will be many funds entering the market to buy at the bottom. But when the Shanghai Composite Index stabilized above 3000 points and national team funds stopped buying, the market lacked new capital inflows. Therefore, in the two months from March to the end of April, the Shanghai Composite Index fluctuated between 3000 and 3100 points.

But since the end of April, there have been intensive voices in the market singing about the Chinese economy. Especially foreign institutions have released numerous bullish views, such as increasing China's economic growth rate in 2024 and the early bottoming out of the real estate market. There are also strong expectations for stable real estate policies in China. Under the joint efforts of internal and external forces, from April 30th to May 22nd, the domestic financing scale increased by a maximum of about 26.9 billion yuan, and northbound funds also net bought nearly 21.7 billion yuan. The collective enthusiasm of foreign investment, expectations for policy implementation and better economy, and the trend of Hong Kong stocks entering a "technical bull market" have all ignited the enthusiasm of investors. As a result, the Shanghai Composite Exchange quickly broke through 3100 points and continued to rise after the May Day holiday.

From the above analysis, it can be seen that starting from the end of April, the market was able to break through the upward trend of the previous consolidation of nearly two months (around 3100 points on the Shanghai Stock Exchange). The most fundamental reason is the expectation of a better future economy, which drove the inflow of leveraged and northbound funds, leading to an increase in A-shares.

The turning point occurred after the "5.17 New Policy" in the real estate industry. The biggest drag on the current domestic economy is the real estate industry, and a stable real estate industry leads to a stable economy. Therefore, in mid to early May, there was a phenomenon of resonance between the real estate index and the overall market. Although the implementation of the new policy on May 17th briefly stimulated market sentiment, from a policy perspective, it still focuses on "residents adding leverage", and the long-awaited real estate storage has not met market expectations and has not made substantial progress.

With the release of the PMI at the end of May and a series of monthly financial, economic, export and other data released in June, the optimistic expectation of sustained economic recovery in the early stage has been falsified to some extent. This may be one of the important reasons for this round of adjustment from May 20th to present.

For example, in May, the PMI for the manufacturing industry was 49.5, which fell below the boom bust line of 50 again after two months. Not only lower than the same period in previous years, but also significantly lower than the market expectation of 50.5%. As a forward-looking macroeconomic data, PMI points to the direction where the future economic recovery is weaker than market expectations.

High frequency financial data has always been seen as a forward-looking indicator of the economy. The growth rate of social financing reflects the actual willingness to expand the economy. Medium - and long-term loans for residents can reflect their willingness to purchase a house, short-term loans can reflect their willingness to consume, medium - and long-term loans for enterprises can reflect their willingness to expand, and M1 to a certain extent reflects the vitality of the real economy. However, financial data in May showed that the year-on-year growth rate of M1 plummeted sharply to -4.2%. Although there were reasons such as financial data squeezing water and regulatory reforms of banks manually supplementing interest rates, the regulatory authorities also explained this uniqueness through various means. However, the sluggish market clearly did not accept it.

In terms of economic data, the economic data for May was mixed. The total retail sales of consumer goods increased by 3.7% year-on-year, up 1.4 percentage points from April, which is better than expected. However, the core issue of real estate drag in economic recovery has not been alleviated, and there are no signs of bottoming out in various data such as real estate investment, sales, and prices. This also indicates to some extent that the May 17th new policy on real estate may not have much stimulating effect.

Although high-frequency economic data may vary, the disappointment of interest rate cuts and policy expectations in the already weak market sentiment has further led to a decline in the market.

However, after a month of adjustment, the risk of A-shares continuing to decline is already relatively small, and the current opportunities far outweigh the risks.

The capital market is always an expected game, and since late May, the performance of A-shares has basically reflected many unfavorable news. But as mentioned earlier, the 3000 point Shanghai Composite Index has become a very strong support for the market, and the space for market decline is already very limited.

At present, the wide base index of layout is undoubtedly a highly winning choice. Whether it is the upcoming heavyweight Third Plenary Session in July or the current regulatory support for the A-share market, the 3000 point mark on the Shanghai Composite Index is a relatively solid bottom. Buying index funds that track the Shanghai Composite Index or the CSI 300 Index in the vicinity has a much greater chance of holding profits than risks. Of course, on the other hand, it should also be noted that the volatility of these market indices is decreasing, and the upward elasticity is not significant.

So, buying a broad base index is a strategy with a high win rate but not a high loss, and the win lies in stability.

For investors pursuing higher odds, there are two perspectives to consider:

Firstly, it is from the perspective of the game of funds. Recently, the trading volume of A-shares has sharply decreased, and the logic of the stock game is at the capital level, with a clear shift in the stock pattern. On the one hand, the reason is that the dividend and non-ferrous metal sectors have already seen significant gains in the early stages, and there are more non profit funds. On the other hand, the AI technology growth sector represented by TMT has shown a significantly weaker trend compared to the Shanghai and Shenzhen 300, and the rebound is not significant. The four main directions of technology stocks in A-shares, namely TMT, new energy, pharmaceuticals, and military industry, lack fundamental drivers beyond expectations, which leads to a lack of motivation for valuation based on performance elasticity. The upward momentum mainly comes from changes in funding and chip perspectives. Therefore, the high cut low of strong concepts may be an opportunity that can be seized in the future. There are opportunities for staged games in pig farming and gold, which have expectations of price increases.

Secondly, the upcoming release of the interim report will bring performance opportunities. The performance growth opportunities brought about by the price increase of the chemical chain in the upstream and midstream raw materials sector; The midstream and downstream equipment manufacturing sector focuses on opportunities related to the export chain of manufacturing equipment upgrading and transformation, such as power equipment, industrial robots, etc; Downstream consumption of household appliances, sports and entertainment products also showed good growth on high-frequency data.