SFCOutlook2024｜InvestmentStrategy:Ch

In 2023, China's national economy continued to recover steadily, and the stock market showed strong resilience.The A-share market performed well in the first half of the year, with major stock indices achieving double-digit gains. In the second half of the year, the stock market became more volatile, but still moved forward amidst fluctuations. With the recent introduction of various macroeconomic policies in China, what are somepromising performances that the Chinese market will have in 2024? What advice can be given to investors? Let's enjoy today'sshow.

China's internet stocks looks particularly resilient

SFC Markets and Finance: What will be the key drivers for China's economy?

Arend Kapteyn: The property market is the most important factor in a forecast that we're nervous about. On the one hand, we look at all the announcements, and enormous number of stimulus measures by number has been announced since the summer. It's not yet obvious that's fully turned the ship. So when we look at the monthly data on property activity, one month is up one month is down, there's no clear pattern yet or troughing in the data. We think we're getting very close to that, so we're becoming optimistic. But that is the single most important thing, because it has all kinds of spillover effects. So that's the thing we're most focused on.

SFC Markets and Finance: How about other industries besides property industry?

Arend Kapteyn: So the bit that we're most excited about in terms of our outlook, when we look at the equity market is really the tech sector. The tech sector is now historically cheap compared to the rest of emerging markets, and certainly compared to developed markets. And what's interesting, when you look at the earnings trends in that sector, they've actually been improving. So despite the weakness that people see maybe in the economy as a whole or property, there are pockets of China that actually very, very resilient, and the tech sector is the one that looks most resilient. So, we like North Asia tech as an industry, but within that, we particularly like China Internet stocks.

Remain exposed to the fixed income in global market

SFC Markets and Finance: What suggestions do you have for investors?

Arend Kapteyn: The main thing we've been recommending from a trading perspective is just to remain exposed to fixed income. Although I think the market is taking a breather here because it rallied so fast in the fourth quarter. But that remains sort of the asset class that should be most safe. We also think that the correlation between bonds and equities is going to turn back around to where it's been historically. We're much more defensive and cautious on equity, generally neutral globally on things like tech. We're also a bit cautious on credit, because the credit spreads are so compressed that we just want to see where growth goes this year, and then I think you can start to go back into credit and equity and things like that. That's the big picture recommendation.

SFC Markets and Finance: Should we keep more cash?

Arend Kapteyn: But it's very difficult to be very overweight cash, as we saw last year. So we've been cautious for a while. But if you weren't invested in the second half of last year, or let's say the last three months of last year, you would have severely underperformed the market. So it's very difficult for a lot of our clients to be too overweight cash. Because the market has a tendency of grinding higher and you don't want to necessarily miss that. So what you actually tend to find speaking to clients is that that's actually what our equity analysts are forecasting, is that we think the market could continue to go up until it becomes much more clear that there's going to be a recession. And at that point, everyone's going to try to get out through the same exit door at the same time. Everyone wants to be overweight cash at that point, which is why you get the big drawdown because you get too many sellers at the same time. But you don't necessarily want to be overweight cash now. I think it's too early to be certain that we're going to get that recession. But certainly, there's a role for being somewhat overweight cash at some stage this year, and it has a role in your portfolio.

U.S. is in a good position in technology sector

SFC Markets and Finance: You mentioned consumer spending is very robust. So how do you think about the technology sector whose stock prices have gone up in 2023?

Campbell Harvey:So again, you need to be careful here,because we're talking seven stocks that did pretty well that drove the performance of the U.S.stock market.But if you look broader in technology, actually there were a lot of layoffsintechnology. So the stock market for certain stocks are going up doesn't mean that goes into GDPdirectly. Again, if you look at the consumer, the consumer was strong mainly because of the pent-up demand and the government programs investment was laggedor negative. But more generally, the U.S.isin a very good position.Because once again,in terms of technological innovations, they're the leader.There's no dispute on this.

So If you think about the innovations that are happening in terms of artificial intelligence or decentralized finance, the U.S. is well positioned to take advantage of those disruptions, and they are significant disruptions. Though it might not go as planned and one of the issues that could be a constraint is onerous regulatory environment that slows down these innovations or leads some of these companies to move offshore. So I think the point of given the performance of certain technology stocks that puts the U.S. in a good position and I agree with that.

Chinese chip industry is fast developing

SFC Markets and Finance: Which industries will have more opportunities in China?

Thomas J. Sargent: I have some ideas, they're probably not good ones. I think one thing is that the U.S. is helping the Chinese chip industry because there's restrictions. It's just no question. If we put these subsidies and restrictions on chips anywhere else, the other countries are going to . I think it's really foolish and the U.S. chip manufacturers think it's foolish. What's going to happen? It's going to subsidize. It's going to incentivize and promote Ramp;D in chips in other places. China is one of them, other places too. China is especially interesting because it has lots of good engineers. It's got companies that entrepreneurs who know how to organize engineers. Ten years from now, if you ask me about chips. All the chips in my saying that would be made in China. They'll probably be pretty good too.

Chinese market willhave more optimistic factors in 2024

SFC Markets and Finance: How will the reserve requirement ratio cut by central bank affect stocks and bonds?

Mingming: For the market, an increase in liquidity supply brings benefits, not only for the stock market but also for the bond market as increased liquidity supply will boost both. The short-term interest rates have been running very steadily. A relatively stable and moderate liquidity environment is conducive to the overall market operation. Since the beginning of the year, there has been a noticeable decline in bond rates.

There are several reasons. One is the recent reserve requirement ratio cut by the central bank, injecting a large amount of liquidity, which inherently helps push interest rates down. Secondly, since August of last year, both policy rates and the LPR have not been adjusted for a while. The market anticipates a rate cut in February, with a strong expectation for continued monetary easing.

Considering the recent release of the Chinese PMI of January, as well as upcoming credit and inflation data, the overall economic outlook suggests a period of weak recovery. Therefore, there is a general belief that it is necessary to further reduce real interest rates to support economic growth.

Thirdly, in terms of bonds, the general practice is early allocation for early returns. Therefore, large institutional investors, such as insurance companies and banks tend to prefer early-year allocations. The combined effects of these three reasons have led to a relatively good performance in the bond market.

SFC Markets and Finance: How will the stock market perform in the Loong Year?

Mingming: I believe the Loong Year will be better than last year. There are several reasons: Firstly, from an international perspective, due to high inflation and monetary tightening overseas last year, significant pressures were exerted on global capital markets, especially in emerging countries' capital markets. Since the beginning of 2024, we have seen growing expectations of rate cuts by the Federal Reserve, so the external environment in 2024 will be better than last year.

Internally, since August 2023, many policies have been introduced, including fiscal, real estate, and investment policies, as well as the recent PSL funding by the central bank and the issuance of 1 trillion yuan government bonds last year, with most of the funds being utilized this year. Additionally, there have been issuance of over 1 trillion yuan of local special refinancing bonds last year. The effects of these policies are expected to gradually manifest this year. Furthermore, there isanexpectation that during the annual "Two Sessions" of China in March, the central government will unveil more proactive policies to support economic growth and recovery. Therefore, I believe optimistic factors are gradually accumulating internally.

策划:于晓娜

监制:施诗

制作:李群

新媒体统筹:丁青云 曾婷芳 赖禧 曾昭发

海外运营监制: 黄燕淑

海外运营内容统筹: 黄子豪

海外运营编辑:庄欢 吴婉婕 龙李华 张伟韬

出品:南方财经全媒体集团

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