The stock market is a complex system influenced by multiple factors.
Recently, a mix of bullish and bearish factors has led to repeated fluctuations in the A-share market. On the positive side, the current valuation of A-shares is relatively low, there is strong policy support, and the Federal Reserve's interest rate cut may also be approaching; however, there are also many unfavorable factors, including the need for improvement in domestic economic data, low market transaction volume and pessimistic sentiment, and significant fluctuations in overseas markets due to the yen's interest rate hike, etc.
GF Securities has sorted out the issues that have recently attracted the attention of institutional investors. Let's take a look at what they are focusing on.
01
Recently, there has been a noticeable reduction in trading volume. What could be the lowest possible trading volume?
To estimate the theoretical minimum trading volume and turnover rate of the market, one would either compare it with the historical situation of A-shares or with overseas situations. However, the issue lies in the fact that the proportion of quantitative trading in the history of A-shares may be much lower than it is now, and the proportion of retail trading in overseas markets is also lower than ours. Therefore, historical experience and overseas comparisons seem to be less applicable.
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A reduction in trading volume does not necessarily mean that the market will rebound. There must also be a change in the expectations of fundamentals to constitute the necessary and sufficient conditions for a market rebound.
02What additional funds might the market see in the future?
Insurance funds are likely to remain a more certain source of additional funds for the market in the future.
On one hand, insurance companies are facing significant reinvestment pressure. High-yielding non-standard assets and bonds they have invested in the past are becoming scarce as they mature in the current era of low interest rates.
On the other hand, the growth rate of insurance premiums has recovered more quickly in recent years. In 2023, the premium growth rate recovered to 9%, second only to the growth rate in 2019. At the same time, against the high base of 2023, the monthly premium growth in 2024 further increased to over 10%.
Therefore, it can be inferred that some high dividend assets with stable ROE are likely to continue to receive a continuous influx of additional funds.
How significant is the risk of the yen continuing to raise interest rates?
The reason why the previous yen interest rate hike triggered a global liquidity panic was mainly due to the closing of carry trade positions, with the market fearing a repeat of the 2006-2007 scenario (when the Bank of Japan raised interest rates by 65 basis points twice, accelerating the bursting of the global financial bubble).
In this round, on one hand, the Japanese interest rate decision further raises interest rates, exiting the zero interest rate policy. On the other hand, poor U.S. employment data at the time and rising expectations for interest rate cuts—-the divergence in monetary policy direction—led to a rapid narrowing of the interest rate differential, reversing the carry trade.
How likely is it that the yen will continue to raise interest rates?As an export-oriented economy, Japan faces significant drawbacks from rapid currency appreciation. With the overall second-quarter economic data showing mediocre performance, if the export sector suffers further shocks, the economic outlook will become even more uncertain.
Considering Japan's government debt levels, the interest rate hike experience from 2006-2007, and the uncertainty of the Federal Reserve's monetary policy, it is highly probable that the Bank of Japan will choose to stay on the sidelines for the remainder of the year.
04
Why have banks become the best-performing sector this year?
In the uncertain global environment of 2024 (slow recovery of domestic demand, Trump trade deals, expectations of a U.S. recession, etc.), "low volatility" is becoming the most important characteristic for investors when selecting stocks, and banks may be the industry with the lowest volatility in the A-share market for five consecutive years from 2020 to 2024.
05
What policies can stimulate the domestic demand sector rally?The traditional transmission path is: substantial general fiscal expansion → leads to a rebound in PPI → boosts the ROE of the domestic demand sector into an upward trend → drives the market performance of the domestic demand sector.
Looking back, during the global economic recovery in 2006-2007, a resynchronization of inventory replenishment between China and the US occurred, with the general deficit rate rising by nearly 6 percentage points; in 2008-2009, the four trillion yuan plan led to a rise in the general deficit rate by nearly 5 percentage points; in 2016, the monetization of shantytown renovation plus supply-side reform resulted in a general deficit rate increase of nearly 10 percentage points; in 2019-2020, post-pandemic special treasury bond stimulus led to a 5 percentage point increase in the general deficit rate.
According to the existing plans for 2024, the increase in the general deficit rate is expected to be around 2 percentage points. However, an increasing amount of general fiscal spending may be allocated to non-physical project investments, such as being used to roll over existing debt.
Therefore, the actual general fiscal expansion remains to be seen, and the beta market performance of the domestic demand sector may still need to wait.
06
How to view the intense competition in the US election again?
Looking at the aggregated poll data from RCP, Harris's support rate has surpassed, but Trump still has an advantage in swing states.
After the US election situation becomes intense again, there may be two impacts:
1. In the case of intense competition, in order to attract votes, Trump may exaggerate his policy positions even more in his speeches and debates, such as targeting commodity prices and imports from China.2. The uncertainty regarding the control of the House of Representatives has increased. The House primarily deals with fiscal deficits and budgets. If the eventual control of the presidency and the House of Representatives do not align, then the fiscal expansion in the United States starting next year may face uncertainty, which means that the expectations for a potential recession in the U.S. could also be subject to change.