CMSC: The incremental funds in December are expected to maintain an overall stable net inflow, and the activity of foreign capital may continue to rise.

CMSC released a research report stating that the outlook for incremental funds in December is expected to remain stable with a net inflow overall, and foreign capital activity may continue to pick up. In December, the market core trading will revolve around the Federal Reserve interest rate meeting and domestic year-end important meetings. Considering seasonal factors, domestic and external liquidity changes, incremental fund changes, etc., the report recommends a large-cap style for December, possibly focusing on growth before value. The recommended style indices for December include: Shanghai and Shenzhen 300, ChiNext 50, low-volatility dividends, 300 materials, and Hong Kong Stock Connect technology. Key points from CMSC: Style outlook: Mainly large cap, growth before value. In December, the market core trading will revolve around the Federal Reserve interest rate meeting and domestic year-end important meetings. Specifically, historically, in the 10 years from 2015 to 2024, large-cap style has performed well in December, possibly due to trading related to policy expectations from the December Central Economic Work Conference and political meetings and the gradual entry into the annual report forecast window in late December. In addition, historically, in late December, there is a high probability of the Shanghai and Shenzhen 300 dividends outperforming the WIND A Index. Furthermore, the People's Bank of China's third-quarter monetary policy execution report introduced the term "cross-cycle," considering the recent restart of bond trading by the central bank, as well as domestic inflation rebound, the report predicts that the domestic policy leverage window will likely await next year. The probability of a rate cut by the Federal Reserve in December is high, and the US dollar index is likely to have reached a temporary peak, potentially weakening the external liquidity's impact on the market compared to November. On the fund side, 1) with the increase in domestic foreign exchange demand at the end of the year and the US dollar index peaking, the renminbi exchange rate is likely to remain relatively strong, attracting temporary inflows of foreign capital, which are favorable to the large-cap style of A shares. 2) Several funds related to technology, AI innovation, and chips are currently being issued, with a concentration of issuance in the first half of December, bringing incremental funds to the AI and chip sectors. 3) The period from the end of December to the end of the first quarter of the next year is an important window for insurance funds' allocation, with previous adjustments in the dividends sector expected to receive attention again. In conclusion, the report recommends a large-cap style for December, possibly focusing on growth before value. Asset performance review: In terms of major assets, global stock markets experienced a general decline in November, with US stocks > A shares > Hong Kong stocks, weakening US dollar index in the forex market and leading the renminbi exchange rate. In terms of commodities, precious metal prices led the way this month, mainly due to a short squeeze in silver, while industrial metal prices fluctuated at high levels. In the bond market, US bond yields declined, Chinese bond yields slightly rose, and the China-US interest rate spread narrowed. Liquidity and fund supply and demand: Incremental funds in December are expected to maintain a stable net inflow overall, and foreign capital activity may continue to pick up. In terms of macro liquidity, under the central bank's guidance, the overall liquidity in the money market remained stable in November. Looking ahead to December, seasonal factors at the year-end may increase fluctuations in the funding market. Considering the clear supportive stance of the central bank's monetary policy, it is likely that liquidity will continue to remain reasonably abundant. Regarding external liquidity, Federal Reserve officials turned dovish at the end of November, and US economic data also indicated an increased possibility of a rate cut, raising expectations for a December rate cut by the Federal Reserve. Funds flowed out of the stock market in November, with new equity funds seeing a significant increase in size; however, ETFs showed a decrease in net purchases and margin financing funds switched to net outflows. In terms of fund demand, the scale of reduction by major shareholders increased. The IPO issuance size increased, but refinancing size decreased, leading to an overall increase in fund demand. New equity funds were the main source of incremental funds in November. Looking ahead to December, incremental funds are expected to maintain a stable net inflow overall, and foreign capital activity may continue to pick up. Market sentiment and fund preferences: Market risk aversion first decreased and then increased, with the market returning to a defensive trading characteristic of low-volatility dividends and small caps, accompanied by a significant decrease in trading volume. From a primary industry perspective, the market favored defensive styles in November, with industries such as banking, textiles, petroleum, light manufacturing, etc., showing better performance. Sectors related to media, communication, and AI also saw gains. Poor-performing industries were mainly those in sectors that had previously seen significant increases, such as computers, automobiles, electronics, etc. Risk warning: Economic data and policies falling short of expectations; Overseas policy tightening exceeding expectations.