Net inflow of nearly 14 billion! Northbound funds hit the second-highest daily scale of the year

The reporter from (: Wang Haimeng; the editor from @E1@: Xiao Ruidong

On May 31 at noon, the State Council released the “Notice of the State Council on Issuing a Package of Policies and Measures to Solidly Support and Stabilize the Economy” (hereinafter referred to as the “Notice”), which includes 33 specific policy measures and task arrangements across six areas, covering fiscal policy, monetary and financial policies, policies to stabilize investment and boost consumption, policies to safeguard grain and energy security, policies to keep industry and supply chains stable, and policies to safeguard basic livelihoods.

The State Council requires that all regions and departments implement the decisions and arrangements of the Party Central Committee and the State Council in a “staying with the plan like driving a nail” spirit, earnestly keep the economy stable in the second quarter, strive to lay a good foundation for development in the second half of the year, and keep economic operations within a reasonable range.

The “Notice” has had a boosting effect on the A-share market on the day; the market showed a broad-based uptrend. Among the 31 Shenwan first-level industries, 26 industries rose. The industries leading the gains include beauty and personal care, electronics, agriculture, forestry, animal husbandry and fishery, food and beverage, electrical equipment, and so on. Is the A-share market likely to embark on another round of rebound from here? In response, reporters from The Daily Economic News interviewed the chief analysts of multiple brokerage strategy research teams.

It is worth noting that on May 31, Northbound Capital recorded a net inflow of nearly RMB 14.0 billion, the second-highest single-day net inflow level this year.

Brokerage chief analysts interpret policy positives

Yi Bin, chief strategy analyst at Western Securities, told reporters that the issuance of the package of policies and measures to stabilize the economy signals that a faster economic recovery is in sight. Judging from the policy document, the government’s determination to stabilize the macroeconomic backdrop is clearly spelled out. Recently, Shanghai has also issued the “Shanghai Municipality Action Plan to Accelerate Economic Recovery and Revitalization.” The overall policy approach focuses on resuming work and production, stabilizing demand, and working to bring the economy back to its normal track while ensuring that operations remain within a reasonable range.

Yi Bin believes that the main line for the June market will shift from the policy-game period to the economic validation period. Since the end of April, the market’s performance has been closely related to the epidemic situation. The dense policy signals in May are also the main factors driving the market sentiment rebound. For the market, it can be seen that in May the first half of the epidemic-recovery trading saw a burst of enthusiasm, but in June the trading pace will gradually slow down and trading styles will become more balanced.

Wu Kaida, chief strategy analyst at Debon Securities, said in an interview with reporters: “The State Council released the ‘Notice of the State Council on Issuing a Package of Policies and Measures to Solidly Support and Stabilize the Economy.’ We believe there are several key areas to focus on. First, cutting taxes and fees will continue to be stepped up, adding RMB 142.0 billion in tax refunds; the total tax refund and reduction for the whole year will be RMB 2.64 trillion, continuing to lower corporate costs and stabilize employment. Second, special-purpose bonds will basically be issued by the end of June; efforts will be made to have them fully used by the end of August. Compared with the wording from the March 29 State Council executive meeting—that special-purpose bonds should complete issuance by the end of September—this timeline is moved forward significantly. Third, there will be a phased reduction of the vehicle purchase tax amounting to RMB 60.0 billion, directly providing consumers with vehicle purchase discounts to stimulate automobile consumption. Fourth, structural monetary policy will be reinforced again: the funding support ratio of the inclusive small and micro loan support tool will be raised from 1% to 2%.”

“At present, the overall economy is still in a passive inventory replenishment cycle. Coupled with intermittent and frequent COVID-19 outbreaks in parts of China and the impact of high commodity prices under the Russia-Ukraine conflict, China’s manufacturing PMI in May was 49.6%, below the boom-bust line, and macroeconomic business sentiment remains sluggish. The country urgently needs domestic policy measures to act countercyclically to stabilize total demand. On May 23, the State Council executive meeting made a plan. Only eight days later, the official notice document was issued. On May 25, the meeting to stabilize the economy and the macroeconomic front line focused intensely on implementation, seizing the time window and ensuring that major policy measures are basically completed in the first half of the year. It is expected that in May, the ‘economic floor’ may be identified. The equity market will gradually emerge from the trough and climb step by step. In terms of pacing, the logic of the first wave of epidemic impact easing and resuming work and production has already been realized. As fiscal efforts kick in and connect broad money to broad credit, the market will build strength for a second wave of advance. In terms of industries, seize the four opportunities:稳增长 (steady growth),自主可控 (independent controllability), consumption recovery, and strategic resources.” Wu Kaida said.

More progress on ETF interconnection

It is worth noting that on May 31, Northbound Capital recorded a net inflow of nearly RMB 14.0 billion, the second-highest single-day net inflow level this year.

According to Choice data, so far this year, the highest point of Northbound Capital’s single-day net inflow occurred on May 20. On that day, the net inflow was RMB 26.4k. In May for the whole month, the net inflow totaled RMB 14.24B, hitting a new high for the year.

Some recently issued policies by regulatory authorities will provide more choices for foreign investors investing in domestic equity markets. For example, on May 27, the CSRC solicited public comments on the “Announcement on Soliciting Opinions Concerning Relevant Arrangements for Trading-Type Open-Ended Funds to be Included in ETF Interconnection.” This marks that the inclusion of ETFs in ETF interconnection has made substantive progress.

In response, a strategy view released recently by the China Merchants Securities (600999) strategy team said that, based on the draft for soliciting opinions from the Shanghai and Shenzhen exchanges regarding the inclusion of ETFs in ETF interconnection, the ETFs in A-shares were screened. A total of 77 ETFs that basically meet the inclusion conditions will be included, accounting for 13.75% of all A-share ETFs. Corresponding to a net asset value scale of RMB 16.87B, this accounts for 65.35% of the total stock ETF scale. Among these ETFs, 33 are broad-based index ETFs, with a corresponding scale of RMB 551.2B; 44 are industry or theme ETFs, with a corresponding scale of RMB 320.5B. Within industry & theme ETFs, ETFs in the TMT and new energy fields account for a large share—for example, semiconductor ETFs, communication ETFs, new energy vehicle ETFs, photovoltaic ETFs, and so on.

The China Merchants Securities strategy team believes that the addition of Northbound Capital will drive the development of the domestic ETF market. On the one hand, it brings incremental funds to the ETF market, which is conducive to improving the liquidity and trading activity of relevant ETFs, thereby raising the enthusiasm of investors in the primary market subscription and accelerating ETF scale expansion. On the other hand, in the future, as Northbound Capital joins, the share of institutional investors in the ETF investor structure is expected to rebound somewhat, which will have a positive role in the healthy development of the ETF market.

In addition, the China Merchants Securities strategy team also stated that, according to the draft for soliciting opinions, ETFs under ETF interconnection have been clearly limited to secondary-market trading, so they will not directly bring incremental funds to the A-share market. They also will not affect the prices of constituent stocks through arbitrage trading between the ETF’s primary and secondary markets, so the direct impact on A-shares is limited.

(Editor: Yue Quanli HN152)

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