Haitong: Short-term blue-chip stable assets are a prudent choice.

Haitong published a research report stating that by drawing on historical experience, improvements in fundamentals and liquidity have led to the dominance of the A-share white horse style. Currently, the valuation of white horse stocks is at a historical low, providing a strong foundation for dominance. With policies possibly intensifying in 2024, improvements in both macro and micro fundamentals are expected. The potential for a rate cut by the Federal Reserve may lead to a return of foreign capital, further enhancing the dominance of white horse stocks. Short-term economic recovery needs to be consolidated, with overseas rate cuts likely delayed, market sentiment needing repair, and investing in stable or more conservative white horse stocks. Key points from Haitong are as follows: Historical experience and current foundation for white horse stock outperformance. Analyzing the relative performance of white horse stocks against all A-shares and small and medium-cap stocks, the conclusion can largely be drawn that the excess returns of white horse stocks are mainly derived from improvements in macro and micro fundamentals and accelerated inflow of foreign capital. Conversely, when the economy is slowing down and foreign capital is flowing out, white horse stocks tend to underperform. In 2023, in an environment where fundamentals are fluctuating and market hot spots are rotating frequently, the overall performance of public funds is less than that of major indices. Looking back over time, the trend of stock funds underperforming major indices has been evident since the beginning of 2021, nearly three years now, which is significantly longer compared to historical data. In an environment where stock funds are underperforming major indices, white horse stocks, previously favored by institutional investors, have also performed poorly compared to the uptrend in high dividend and artificial intelligence sectors this year. In terms of valuation, influenced by the previous market correction, the valuation level of white horse stocks has fallen to historical lows, gradually highlighting the investment value. Improvements in fundamentals and liquidity are expected in 2024. One of the reasons for the poor performance of white horse stocks in 2023 was the setbacks in China's economic recovery. It is expected that with policy support in 2024, the domestic economy will gradually improve, with the real GDP growth rate expected to reach around 5% in 2024. At the micro level of corporate profits, in the backdrop of economic recovery, A-share profits are expected to continue to rebound, with the year-on-year growth rate of net profits attributable to all A-shares expected to reach 5-10% in 2024. With the gradual recovery of the macro economy and corporate profits in 2024, referring to historical experience, white horse stocks are expected to generate excess returns in the fundamental phase. In addition to fundamental reasons, the significant outflow of foreign capital from the A-share market in 2023 has also been a key factor suppressing the performance of white horse stocks. The pressure of Federal Reserve tightening in 2024 is expected to gradually ease, and the marginal easing of overseas liquidity will be favorable for the increase in foreign capital risk appetite, leading to a flow back into the A-share market. This will also help alleviate the pressure on domestic monetary policy, having a positive impact on fundamentals and investor expectations. In addition to foreign capital, another significant force that cannot be ignored is the optimization and adjustment of domestic investors' positions, which will bring more funds back to white horse stocks. Stable white horse assets are a prudent choice in the short term. Drawing on historical experience, the relative performance of stable white horses and growth white horses is related to factors such as the difference in their fundamentals, the impact of U.S. Treasury rates influencing valuations, and investor risk preferences. Short-term economic recovery needs to be consolidated, with overseas rate cuts likely to be delayed and market risk sentiment in need of repair, making investing in stable white horses a more prudent choice. Looking back at history, there is a cyclical pattern of around three years for the relative performance of stable white horses, indicating that the excess returns of stable white horses may not have ended yet from a time perspective. More importantly, considering the three influencing factors mentioned earlier, short-term stable white horses are supported in continuing to outperform growth white horses. On the fundamental side, although the Chinese economy is expected to recover in 2024 and short-term policies are continuously being implemented, it may take some time to observe the effects of these policies and see a strengthening of economic recovery. Therefore, white horses categorized as stable with stronger performance are still the preferred choice for investors. In terms of valuation, although a rate cut from the Federal Reserve is expected in 2024, there are still uncertainties in the short term. Lastly, the A-share risk premium rate is around the mean + 2 times standard deviation, indicating that investor risk appetite remains low. Therefore, in the short term, stable white horses are likely to continue to dominate, but it is important to emphasize that if looking at the whole year of 2024 or a longer period, growth white horses are still the main trend. Risk Warning: If the pace of the stable growth policy implementation falls short of expectations, and if the domestic economic recovery is slower than expected.