Index Investment Monthly Market Snapshot – Apr 2024
April 07, 2024|

Lin Weibin

In 2024, the Two Sessions prioritized the construction of a modern industrial system and the development of new quality productive forces on the government’s agenda for the year. To achieve these goals, a series of measures were announced, including extensive equipment upgrade and trade-in program of consumer goods. These initiatives are expected to drive sustained high-quality economic growth and boost investor confidence. In response, the A-share market experienced a swift rebound in Q1 after a temporary decline. This rebound was characterized by uplifted market sentiment, enhanced liquidity, and increased diversity in market trends, signaling market stabilization and improvement. Entering April, A-share listed companies are poised to release their annual and first-quarter reports. According to previous market movement, fundamentals are expected to act as the primary driver of market pricing. High-quality blue-chip stocks and high-dividend stocks with stable performance and ample cash flows are likely to have appeal to investors.

In terms of individual instruments, we advise an eye on the CSI A50 Index (BBG Ticker: CSIA50) and the CSI Dividend Index (BBG Ticker: SH000922), which are representative indices of top-quality industry leading companies and high-dividend stocks in the A-share market, respectively. The CSI A50 Index, composed of stocks of Top 50 listed companies in terms of market capitalization across various industries, is designed to reflect the overall performance of the most representative leading companies. The CSI Dividend Index, comprising the stocks of 100 listed companies with high cash dividend yield, stable dividend distribution, large size and high liquidity, aims to depicting the overall performance of the stocks of high-dividend-yield listed companies.

Pang Yaping

The spring market momentum slowed down in March, aligning with the seasonal effects observed in the A-share market. Looking back, A-share market’s spring rally in February and March is typically driven by ample liquidity and policy expectations from the Two Sessions, bringing significant market performance. As this period coincides with an information gap, transactions are concentrated on small- and medium-cap growth stocks that are more susceptible to policy effects. This phenomenon was also observed in this year’s spring market trend.

Looking forward to April, supporting policies formulated at the Two Sessions have been priced in; and A-share listed companies will announce their annual reports. From the listed companies’ past annual reports release behavior, we can infer that most well-performing companies disclose their performance in the earnings reports before April and those delaying their announcements are likely to underperform. Therefore, the market is anticipated to turn into fundamental-driven pricing, prioritizing large-cap stocks with high ROEs over small-cap ones. Additionally, the higher-than-expected performance of macroeconomic indicators including CPI and PMI in March has lifted the market’s confidence in economic recovery. Looking ahead, market expectation will further improve as fiscal policies released in April have bolstered the market momentum and infrastructure development is providing more support to the economy. Therefore, we advise a close watch on the CSI 300 ETF (BBG Ticker: 510310 CH), which is characterized by pro-cyclical nature and core assets.

Yu Haiyan

In the coming phase, we expect macroeconomic policies to continue demonstrating their impact in the financial industry.. The Two Sessions have outlined the plan for the year, specifying policy directions and key tasks. Incremental measures were introduced, including large-scale equipment upgrades, trade-in of consumer goods, and the issuance of ultra-long-term special government bonds. These actions, combined with the ongoing effects of previously implemented policies to cut reserve requirement ratio, interest rates, taxes and surcharges, will support the continued economic recovery. Recently, there has been an increase in volatility in the A-share indices, driven by two factors——on one hand, China’s economic data for January and February have shown signs of stabilization and improvement, which has led investors to focus on the sustainability of this economic recovery; on the other hand, recent events such as fluctuations in the RMB exchange rate and the China-US relationship have had an impact on investor risk appetite.

Coming to April, with the economic indicators for Q1 and March released, investors will have a clearer grasp of the current economic conditions. With the listed companies’ disclosure of annual reports and Q1 reports, the market may focus on the cross verification of economic data and the company fundamentals. In our view, the A-share market may experience short-term volatility, with a slowdown in the rate of rebound. However, the recovery trend is likely to continue, and the market downside risks are limited. The main reasons are as follows: 1) Marginal improvement in recent macroeconomic data indicates the elapse of a phase of weakest investor expectations for economic fundamentals, and structurally, policy supports continue to drive high-quality development and advancements in new quality productive forces; and 2) as a part of the ongoing capital market reform, CSRC has rolled out the policies to intensify rigorous regulation, in order to protect the interests of investors and boost market confidence.

Fan Bing

The stock prices of Chinese internet companies listed in foreign exchanges are variously affected by the macro economy, corporate fundamentals, global financial conditions, global industry developments, and regulatory policies. Firstly, the economic data released for January and February were generally on the positive side, posting better-than-expected growth in exports, fixed-asset investment, and total retail sales of consumer goods. The 23Q4 financial statements from many Internet leaders have all reported YoY growth in profit, showing an overall positive profit picture. Secondly, the Fed announced no change to policy rate at its FOMC meeting in March, despite the previous resilient inflation data. The dot plot suggests that most Fed officials forecast three rate cuts within 2024, more than the market anticipated. Consequently, U.S. Treasury yields experienced a mild pullback. Lastly, on the fiscal policy, the Government Work Report has proposed the “AI+” initiative to cement the foundation for computing infrastructures. The Ministry of Industry and Information Technology has noted moderately proactive construction of 5G and computing infrastructures. Presently, Chinese Internet companies are still at a relatively low level in their valuation, presenting appeal for allocation and trading.

The CSI Overseas China Internet 50 Index (BBG Ticker: CSIH0533) is composed of constituents that are top Chinese internet companies listed in foreign exchanges, in terms of total market value and liquidity and are representative of China’s digital economy and platform economy. Amid the stabilization of China’s economy and the recovery of consumption, Chinese internet companies are expected to experience consistent, positive, and healthy development. Products that are tracking this index are poised to become important tools for sharing investment opportunities in China’s technology and internet industry.

Cheng Xi

In March 2024, thanks to policies on developing new quality productive forces, China’s technology sector and high-end manufacturing maintained a fast growth momentum. Firstly, the Chinese renewable energy industry has expanded its competitive edge, stepping up developments in renewable energy infrastructure projects, including the intelligent transformation of power grid infrastructures and smart micro-grid construction, as well as in the energy storage industry. With the support of local policies, grid-connection and energy storage capacity have scaled up rapidly. Secondly, at the end of March, Xiaomi SU7 made its debut, recording higher-than-expected orders. This further bolsters prosperity in the smart car industry. Lastly, OpenAI’s robots showed stellar performance, representing a major milestone in the commercialization of the robotics industry. The combined application of robotics and AI also means a smart mix of China’s manufacturing prowess and AI.

In March 2024, growth stocks had continued their rebound starting from February, evidenced by an outperforming ChiNext Index (BBG Ticker: SZ399006). As a part of the reforms in the ChiNext market, the ChiNext Index is mainly exposed to the renewable energy sector and partly to high-end manufacturing, IT, pharmaceuticals etc. This index is an epitome of China’s global industrial prowess, facilitating fast and easy ways to share the growth of China’s technology and innovation sectors.