Source: CICC
The performance of overseas Chinese-funded stock markets last week surprised many investors. Despite some retracement in the latter half of last week, the overall upward trend was quite significant, especially the sudden surge on Tuesday that caught the market's attention. Some investors attribute the rebound led by pro-cyclical sectors and core assets to reflation trades, but we believe it is somewhat forced.
On one hand, although the year-on-year CPI in February appears strong, it is mainly driven by the Spring Festival effect and service consumption, not enough to eliminate deflationary pressures on the production side, especially with weak real estate demand and overcapacity in the new energy manufacturing industry being two major sources of pressure. On the other hand, most high-frequency data in March showed a weak performance, and the latest social financing and credit data were also relatively flat.
From a fundamental perspective, the explanation of reflation trades last week does not seem very convincing. We believe that the short-term market rebound is more due to short covering and the inflow of some foreign speculative capital.
In the absence of significant progress in inflation and fiscal policy, the recent market rebound driven by pro-cyclical sectors seems to lack a solid foundation. Without further sufficient fiscal stimulus, the market may consolidate and fluctuate within a certain range, with structural opportunities being more worthy of attention, and the dumbbell strategy remains effective.
Looking ahead, policy implementation remains a key factor. On the monetary policy front, the MLF remained unchanged on March 15th. Further interest rate cuts are still necessary to lower the relatively high actual and relative financing costs, but constrained by factors such as exchange rates and bank interest rate differentials, interest rate cuts may not necessarily materialize. In comparison, the strength and pace of fiscal policy are more crucial.
In this context, we believe that structural opportunities, especially the &#34;dumbbell&#34; strategy we have continuously recommended over the past year (high dividends, going global, and technology growth as the three main themes), will continue to be the main allocation strategy

Some investors attribute the rebound in pro-cyclical sectors and leading core assets to re-inflation trades, but CICC believes it is somewhat forced. From a fundamental perspective, the short-term rebound in Hong Kong stocks is more due to short covering and inflows from some foreign capital for short-term speculative rebounds

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Market Insight | How to view the rebound of Hong Kong stocks last week?