Zhongjin: Economy recovered well in October, but market uncertainties still need attention.

"GF Securities has released a research report stating that in the current situation of low valuations, sentiment, and allocation, the easing of external disturbances can lead to a significant rebound or even outperformance. However, without the support of domestic economic growth as a foundation, the rebound may be difficult to sustain. On the external front, there has been a relaxation in US bond yields and US-China relations, but attention still needs to be paid to the potential disruptions caused by uncertainties. The main points of GF Securities' analysis are as follows: Specifically, the main logic supporting our viewpoint and the factors that need to be considered from last week include: 1) Macroeconomics: In October, the economic recovery continued to improve, but endogenous momentum still needs to be strengthened. Industrial value-added and services production index both increased by 4.6% and 7.7% YoY in October, respectively, improving by 0.1 ppt and 0.8 ppt compared to September. Export delivery value decreased by 0.5% YoY, narrowing the decline. Retail sales of consumer goods in October grew by 7.6% YoY, with a growth rate 2.1 ppt higher than the previous month, possibly mainly affected by holidays and shopping season in October. Fixed asset investment in October increased by 1.2% YoY, with a slowdown in growth rate, mainly dragged down by the decline in real estate and infrastructure investment. 2) Finance: New social financing in October fell short of market expectations, mainly driven by government financing. New social financing in October was 1.85 trillion yuan, lower than the market's consensus expectation of 1.95 trillion yuan, an increase of 910.8 billion yuan YoY, mainly driven by government financing. Net financing of government bonds in October was 1.56 trillion yuan, an increase of 1.28 trillion yuan YoY. New RMB loans in October amounted to 738.4 billion yuan, mainly affected by the increase in non-bank institution loans at the end of October. M2 YoY growth rate remained at 10.3%, while M1 YoY growth rate dropped to 1.9%. RMB deposits increased by 644.6 billion yuan in October, an increase of 831.2 billion yuan YoY. Among them, household deposits decreased by 636.9 billion yuan, non-financial corporate deposits decreased by 865.2 billion yuan, fiscal deposits increased by 1.37 trillion yuan, and deposits of non-banking financial institutions increased by 506.8 billion yuan. 3) The meeting between the Chinese and US presidents was held in San Francisco, and expectations for US-China relations improved. On November 15th, the leaders of China and the United States exchanged views on important issues such as US-China relations in San Francisco. Both sides agreed to promote and strengthen dialogue and cooperation in various fields, including establishing a government-to-government dialogue on artificial intelligence, setting up a Sino-US anti-drug cooperation working group, and resuming high-level military communication on the basis of equality and respect, expanding exchanges in education, students studying abroad, youth, culture, sports, and business sectors, etc. The meeting between the Chinese and US presidents may bring expectations of a thaw in US-China relations. 4) The US CPI in October exceeded expectations with a slowdown, but the month-on-month decline in retail sales was smaller than expected. The US CPI in October increased by 3.2% YoY, lower than the market's expectation of 3.3%, and the core CPI increased by 4.0% YoY, also lower than the market's expectation. The unexpected cooling of US inflation has led to a continued decline in US bond yields and the US dollar index, reducing the necessity for further interest rate hikes by the Federal Reserve, and market pricing of an earlier-than-expected interest rate cut in the United States. In addition, the US Department of Commerce released October US retail sales data, with a month-on-month decline of 0.1%, which is smaller than the expected -0.3%, lower than the revised previous value of 0.9%, indicating a continued slowdown in the consumption market. 5) MSCI announced the semi-annual adjustment of the MSCI China Index, which will take effect after the market close on November 30th and be effective on December 1st. In this adjustment, 19 new constituent stocks will be added to the MSCI China Index, including LEAPMOTOR and BRILLIANCE CHI, while 19 constituent stocks will be removed, including 9 Hong Kong stocks, namely CONCH VENTURE, DONGYUE GROUP, JIUMAOJIU, SHENZHEN INT'L, YIHAI INTL, BEIJING AIRPORT, CHINA JINMAO, CHINARES CEMENT, MEIDONG AUTO. 6) On November 17th, Hang Seng Index Company announced the results of its quarterly review. The Hang Seng Index will include Ideal Auto and WuXi AppTec, increasing the number of constituent stocks from 80 to 82; the Hang Seng Tech Index will not undergo any changes, with the number of constituent stocks remaining at 30. In addition, the reduction of stamp duty on stock transactions in the Hong Kong stock market officially took effect from November 17th, reducing the bilateral collection from 0.13% of the transaction amount to 0.1% of the transaction amount. 7) Liquidity: Last week, both northbound and southbound funds had net outflows, and overseas active funds continued to flow out. EPFR data shows that foreign funds flowed into overseas Chinese stocks by USD 674 million last week, compared to a net outflow of USD 308 million the previous week. Specifically, overseas active funds experienced a net outflow of USD 292 million, which has lasted for 20 weeks, while passive funds experienced a net inflow of USD 966 million. At the same time, the net outflow of northbound funds narrowed, with a total outflow of RMB 4.98 billion last week (an average outflow of RMB 1.0 billion per day, compared to an average outflow of RMB 1.59 billion the previous week). Due to investors taking profits, southbound funds turned into outflows, with a total outflow of HKD 209 million last week."