Soochow: Looking at the post-holiday market from a financial perspective.

Soochow released a research report stating that since the end of last year, domestic policies have entered a vacuum period, external uncertainties have increased, and the repeated disturbance of the Fed's interest rate cut expectations. Under the pressure of a strong US dollar, the demand for exchange rate stability has increased. As a result, the trading volume of the A-share market has decreased, and risk appetite has fallen. Looking at the market's downward trend from the perspective of funding, the decrease in active fund sentiment, the decrease in liquidity-type securities, and the imbalance between stocks and bonds are key factors in the market adjustment. Soochow's main points are as follows: This round of market adjustment is largely influenced by seasonal effects on liquidity. From the end of the year to before the Spring Festival, due to significant pressure on macro liquidity, trading activity in A-shares is often low, especially in small-cap growth style trading. On one hand, as the Spring Festival approaches, companies need to deal with issues such as employee payroll and loan settlements; on the other hand, residents also need to "hold coins" for holiday consumption and social interactions. Influenced by the tight macro liquidity, the on-exchange liquidity of A-shares at the beginning of the year also tends to weaken. Over the past 10 years, the average daily turnover rate of all A-shares in January is 2.33%, significantly lower than other months. Trading in small-cap growth style is particularly sluggish, with the daily turnover rates of the CSI 1000, CSI 2000, and Growth Enterprise Board indices in January being the lowest of the year at 3.03%, 3.14%, and 3.67% respectively. Recently, the "pre-holiday effect" of liquidity tightening in A-shares has been as expected. Liquidity securities, represented by technology growth and small and medium-sized market capitalization, have significantly decreased in volume. From January to date (as of the 17th, the same afterward), the average daily turnover of A-shares has decreased from 16.111 trillion yuan in December of last year to 12.005 trillion yuan, with a 0.54% decline in turnover rate compared to the previous period. Looking at the indexes, the daily average turnover rates of the CSI 2000, the CSI 1000, and the Wind Micro Panel index in January have all significantly decreased, with declines of 0.90%, 0.78%, and 0.77% respectively. Looking at industries, the top three industries with the largest decline in trading interest are social services, media, and computers, with declines of 2.44%, 2.32%, and 2.00%. This suggests that the trading activity of growth, technology, and micro-cap styles has significantly decreased since the beginning of the year. From the perspective of the main participants' emotional indicators and fund flows in the market, the active fund sentiment has been weakening since the beginning of the year, with mixed emotions from domestic and foreign institutions. In terms of active funds, retail investor sentiment indicators characterized by small orders have been weakening for the past two weeks (1/6 1/17), and leveraged funds have turned into a net outflow of 36.2 billion yuan in January from a net inflow in December, indicating a decrease in active fund sentiment before the holiday, driving the decline in trading volume of small-cap tech growth stocks. In terms of institutions, the turnover of northbound flows in January has marginally declined, with average turnover falling significantly by 12.9 billion yuan to 78.5 billion yuan; since late December last year, overseas-listed ETF funds that heavily invested in A-shares have continued to have a net outflow, which further increased to 650 billion yuan this week (1/13 1/17), indicating an increase in foreign divestment; in terms of public funds, since January, newly issued equity funds and ETF funds have both made significant contributions to the market, with net inflows of 13.7 billion yuan and 40.7 billion yuan, respectively. ETF funds that track the Shanghai and Shenzhen 300 and the CSI A500 products have respectively attracted 21 billion yuan and 7.3 billion yuan in net purchases, accounting for 70% of the total net purchases, providing some support to the market's style. Since the beginning of the year, the seesaw of funds between stocks and bonds has leaned towards the bond market, possibly being one of the reasons for the stock market adjustment. From the perspective of the balance between stocks and bonds, the decline in the stock market at the beginning of the year may be partly due to the "imbalance" in the allocation of funds between stocks and bonds. With investors generally having lower risk appetite as the Spring Festival approaches, the need for risk aversion and asset allocation rebalancing becomes more evident, making stable fixed-income assets more attractive in the market. Recently, the stock positions of public funds have been declining, with the central point of stock positions in flexible allocation funds in January declining by 0.83% to 64.7%, reaching a low of 64.0% on Monday (1/13), and then rebounding to 64.9%. At the same time, the bond market has been performing strongly, with bond yields at historical lows. The ten-year government bond yield fell below 1.5% at the beginning of the year. As of January 17, the one-year and ten-year government bond yields were 1.26% and 1.66% respectively, significantly lower than the current funding cost (DR007 rate on January 17 was 3.13%), indicating that funds may be in an "overweight" position in the bond market. Market outlook and fund perspective before and after the Spring Festival Looking ahead, January 20th, when Trump takes office, is a key time window for the landing of overseas uncertainties. As negative factors gradually clear, the current weak market sentiment actually provides space for the expectation to recover again. Based on the widespread expectation of investors for a "spring boom" in A-shares after the holiday, it is not ruled out that there may be a possibility of the market "triggering" a rebound before the Spring Festival. In terms of funding, with funds returning to the banking system after the holiday, the macro liquidity situation is expected to improve, and the emergence of active funds will change the current situation where small and medium-cap stocks are under pressure. Based on historical experience, macro liquidity tends to loosen gradually before and after the Spring Festival, with the turnover rate of the entire A-share market in February often significantly improving from January, with an expected increase by 0.25% compared to the average level since 2014. The market victory rate and profit effect will be enhanced, and the 60 trading days after the Spring Festival will often show good elasticity in small-cap and growth style stocks. From the perspective of stock-bond allocation, the bond market may already be in an "overweight" state. In addition to the Financial Times' article this year on "moderate easing" adjustment and the announcement by the central bank of suspension of open market purchases of government bonds, the stock-bond balance is expected to move towards equilibrium. It is expected that before and after the Spring Festival, against the backdrop of abundant liquidity, continued active industrial trends, and the opening up of policy imagination space, A-shares in small and medium-cap technology and cyclical styles will be interpreted together. In terms of specific sector allocations, the growth of technology is recommended to focus on five directions: 1) Artificial Intelligence: AI Agent, end-side hardware in AI applications (AR glasses, etc.), reasoning power, humanoid Siasun Robot & Automation, self-driving; 2)New Energy: Photovoltaic/Lithium battery new technologies, new power system, future energy.3) Independent and controllable: chip manufacturing industry chain, information technology creation, domestic large aircraft; 4) Aerospace information technology: Low-altitude economy, satellites & commercial aerospace; 5) Data elements: Data element authorization operation platform, data resource developers, medical insurance data elements, cross-border data circulation, data security. Pro-cyclical recommendations to focus on: 1) Debt conversion: environmental protection, construction, machinery, information technology, etc.; 2) New growth points in consumption/potential policy increments: cultural tourism, automobiles, emotional economy, first issuance economy, silver economy, online retail, e-commerce operation outsourcing; 3) "Double new and double growth" structural increments: consumer electronics, industrial automation equipment, industrial software; 4) Real estate chain: building materials, liquor. Risk warnings: The speed of domestic economic recovery is lower than expected; the Fed's interest rate cuts are less than expected; macroeconomic policy measures are less than expected; geopolitical risks.