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At a recent closed-door meeting held by Morgan Stanley, Chief Economist Xing Ziqiang conducted an in-depth analysis and outlook on the market performance since the beginning of the year.
The representative of the investment workbook summarized the key points as follows:
<ol>
<li>The reason for the market's &#34;good start&#34; at the beginning of the year is the deepening of the &#34;three ongoing processes.&#34;</li>
</ol>
This includes the deepening confidence in the &#34;starry sea&#34; power of China's technological innovation from the industrial side, the so-called &#34;deposit migration&#34; from the capital side, and the liquidity support brought by institutional investors' &#34;seesaw&#34; reallocation from bonds to stocks.
Additionally, there is the global sentiment aspect, as we still observe the geopolitical pattern of &#34;stability in the East and fluctuations in the West.&#34;
In the context of uncertainty in U.S. and Western economic policies, the global process of &#34;demystifying&#34; dollar assets is still ongoing, including the depreciation of the dollar and the moderate appreciation of the other side of the coin—the renminbi.
<ol>
<li>Although the capital market is chasing some highlights of &#34;technological innovation and starry sea,&#34; in the short term, these so-called &#34;starry sea&#34; style technological self-improvement is still difficult to offset or compensate for the pressure brought by the downturn of traditional &#34;old economy&#34; sectors.</li>
</ol>
Therefore, from the perspective of economic fundamentals, the current enthusiasm has not rebounded quickly and is still in a &#34;winter&#34; adjustment.
<ol>
<li>
We must repeatedly warn that this year, many favorable news for the market seem to be concentrated in the first quarter, which is often referred to as the &#34;spring excitement.&#34;
</li>
<li>
We still need to emphasize that it is not appropriate to sing high praises about the renminbi entering a long-term, significant, and substantial appreciation range.
</li>
</ol>
The following is the essence of the content organized by the representative of the investment workbook (WeChat ID: touzizuoyeben), shared with everyone:
<h2>The Logic Behind This Year's Market Good Start: The Deepening of &#34;Three Ongoing Processes&#34;</h2>
Last week, I participated in some discussions both inside and outside the system in Beijing, where many people expressed concern that the stock market has been rising sharply since the beginning of the year, and the regulatory authorities have also taken appropriate actions, intending to provide window guidance. Can this momentum be sustained in the future?
I believe the reason for the market's &#34;good start&#34; at the beginning of the year, as mentioned in our macro strategy discussions over the past three weeks, is the deepening of the &#34;three ongoing processes.&#34;
This includes the deepening confidence in the &#34;starry sea&#34; power of China's technological innovation from the industrial side, the so-called &#34;deposit migration&#34; from the capital side, and the liquidity support brought by institutional investors' &#34;seesaw&#34; reallocation from bonds to stocks.
Additionally, there is the global sentiment aspect, as we still observe the geopolitical pattern of &#34;stability in the East and fluctuations in the West.&#34;
In the context of uncertainty in U.S. and Western economic policies, the global process of &#34;demystifying&#34; dollar assets is still ongoing, including the depreciation of the dollar and the moderate appreciation of the other side of the coin—the renminbi.
Therefore, these three &#34;ongoing processes&#34; may still be one of the main factors driving market sentiment.
First, from the industrial side, the market is following the &#34;14th Five-Year Plan&#34; to seek these &#34;starry sea&#34; technological innovations and self-improvement
For example, whether it is the combination of artificial intelligence and brain-machine interfaces, or some new commercial aviation and other cutting-edge sectors, they have all become the focus of the current capital market.
This overall reflects a renewed recognition of the tenacious and innovative spirit of Chinese entrepreneurs. However, there are also some matters that deserve the attention and caution of regulators and investors.
We all know that the &#34;14th Five-Year Plan&#34; is a long-term plan for the next five years, right?
Some technological breakthroughs accumulate bit by bit, whether it is the domestic substitution of computing power for imports, commercial aviation, brain-machine interfaces, or even some more cutting-edge technologies in the future.
However, often in the context of the capital market &#34;gathering momentum&#34;—that is to say, under the backdrop of residents moving their deposits, institutional investors reallocating from bonds to stocks in a &#34;seesaw&#34; manner, and the simultaneous depreciation of the dollar overseas, along with the global sentiment warming towards Asian assets—a small spark can be instantly ignited.
For example, certain technology concepts may trigger a massive influx of funds within just two or three weeks, causing related industry funds or ETFs to swell tenfold or even dozens of times, reaching scales of 50 billion or even 100 billion.
I believe this phenomenon has already attracted significant attention from decision-makers. There is a caution regarding some speculative funds excessively over-leveraging technological breakthroughs that would take years to accumulate.
Conversely, this does not negate the overall step-up of the capital market since September 24, 2024, nor does it imply that it is overheating and needs to cool down comprehensively—absolutely not.
Regulators still hope to achieve a slow bull market that is matched with the fundamentals, which can be solidified and institutionalized.
However, for the various phenomena that have emerged in the short term—just like I mentioned in the second half of last year, it is not a &#34;technology flow,&#34; but rather a &#34;science fiction flow&#34;—it is necessary to provide some window guidance for such phenomena, and this window guidance has already occurred.
But regarding the &#34;three ongoing situations&#34; analyzed earlier, I believe the overseas situation is still temporarily favorable for China.
<h2>The capital market chasing &#34;starry sea-style&#34; technological self-reliance still struggles to offset the pressure brought by the downturn of traditional &#34;old economy&#34; sectors.</h2>
The &#34;de-mystification&#34; of the global dominance of dollar assets is deepening.
In the past three to four weeks, there have been clear new messages every weekend, with &#34;stability in the East and fluctuations in the West.&#34;
From some changes in Latin America to the U.S. intervention in its central bank appointments, and recently, events related to Greenland triggering unilateral actions such as the U.S. threatening to impose tariffs on the EU.
Overall, firstly, this has broken the previous months' perception that tariffs had balanced, would not rise again, and would only decrease. Now this perception has been overturned, and tariff risks may not only decline but also rebound.
In this process, various uncertainties regarding unilateralism, tariffs, immigration, and other discussions on central bank independence have led to what we call the global investors' recognition of the past &#34;dominance of dollar assets&#34; now undergoing &#34;de-mystification.&#34;
In this process, everyone may conduct asset rebalancing, and the attractiveness of assets, including those in China, is becoming more prominent. Foreign capital may be gently flowing in
But to put it bluntly, whether it's the relocation of domestic residents' deposits, the &#34;seesaw&#34; reallocation of institutional investors from bonds to stocks, or the improvement in sentiment towards the Chinese market due to the &#34;de-mystification&#34; of dollar assets overseas, combined with some technological highlights and market enthusiasm sparked by certain concepts, this enthusiasm may still diverge from the pace of breaking deflation in the economic fundamentals.
The economic indicators released today for last month, as well as the GDP situation for the fourth quarter, all show that the recovery of domestic demand is still relatively weak, and the real estate market is still in a clear adjustment period.
The most important reflection of domestic demand, the total retail sales of consumer goods, saw a year-on-year growth rate of less than 1% in December after the effect of the &#34;old-for-new&#34; subsidy gradually faded, which is below market expectations.
This indicates that, despite the capital market's pursuit of some highlights in &#34;technological innovation and vast oceans,&#34; in the short term, these so-called &#34;vast oceans&#34; of technological self-reliance are still difficult to offset or compensate for the pressure brought by the downturn in traditional &#34;old economy&#34; sectors.
Therefore, from the perspective of economic fundamentals, the current enthusiasm has not rebounded as quickly and is still in a &#34;winter&#34; adjustment phase.
<h2>Current measures are guidance for short-term overheating technology concepts, not to dampen overall market enthusiasm</h2>
I think this is also the main reason why regulators are very concerned about whether the market is healthy and whether the match with the fundamentals can be solidified and whether the direction is correct.
Of course, I think this is just a moderate cooling window guidance, definitely not intended to extinguish the market confidence that has been hard to build up since September 2024.
After all, from September 2024 to now, the capital market (whether in Hong Kong stocks or A-shares) has played a supporting role for new productive forces.
Many good companies have brought returns to the public through IPOs and refinancing.
After all, dividends and buybacks have played a role in enhancing the capital market's returns on residents' wealth, as well as providing a buffer in geopolitical terms, restoring some confidence for foreign capital and enterprises in laying out in China—especially in terms of future industrial competition and reconfiguring those forward-looking tracks in China.
These three major roles are still present.
Therefore, the current measures are definitely just window guidance aimed at some overly heated and overly frantic so-called technology concept sectors (which have overdrawn future growth), and not intended to dampen the overall market enthusiasm from September 2024 to now.
This is a judgment I have made based on my understanding of the overall attitude of regulatory bodies, including securities and financial regulatory departments.
<h2>Spring excitement, worth warning</h2>
We must repeatedly warn that this year, many favorable news for the market seem to be concentrated in the first quarter, often referred to as &#34;spring excitement.&#34;
From this year's analysis, first, in terms of economic indicators, the first year of the &#34;14th Five-Year Plan&#34; will see many infrastructure construction investments being arranged in advance to promote a &#34;good start&#34; in the first quarter.
However, this mainly drives the infrastructure part that the government can control, and the short-term stimulating effect on private sector demand is still relatively limited. This is from the perspective of the GDP &#34;good start&#34; sprint
<h2>It is not advisable to sing high praises for the long-term significant appreciation of the Renminbi</h2>
The second aspect is from the perspective of Renminbi appreciation. We must emphasize that it is not advisable to sing high praises for the Renminbi entering a long-term, significant, and substantial appreciation range, and to expect that this appreciation will solve China's asset price wealth effect and a series of rebalancing issues such as China's international trade imbalance. This is clearly putting the cart before the horse.
Because China's so-called economic imbalance will definitely be a major focus this year.
At this year's G20 summit, the international community, especially Western countries, wants to focus on discussing global economic imbalances, and China is an important part of this. For example, looking solely at the current account surplus (trade surplus), China has a relatively large one. The flip side of the coin is that some countries have a significant deficit.
However, I think there are many issues we have analyzed that involve the long-standing development models of the United States and China, rather than simply relying on exchange rates and currency to &#34;correct&#34; the situation.
For instance, the United States has formed a high-consumption, low-savings development model over the past few decades, thanks to the dominant status of the dollar as a reserve currency.
China, on the other hand, is the flip side of the coin, characterized by high savings and high investment. Of course, with high savings and high investment, we cannot consume so much output internally, which leads to exports.
Coincidentally, the U.S. has high consumption and low savings, creating an apparent imbalance between the two in terms of current accounts and trade.
Moreover, looking more specifically, there have been significant factors in the past decade related to national security, market access, and technological competition.
That is to say, if we strictly discuss complementarity between China and the U.S., China would like to buy some things from the U.S., but may not be able to do so.
There are also various other issues involved, and currency and exchange rates are not the core reasons.
In fact, historically, whenever China hoped to achieve corrections through currency appreciation, such as from 2005 to 2007 and from 2010 to 2014, the Renminbi appreciated by about 13% to 14% in each of those rounds, but it did not narrow the trade imbalance between China and the U.S.; instead, the trade surplus with the U.S. increased.
Therefore, I think if we are talking about correcting issues through exchange rates, it is evident that we need to address the root causes through a path of &#34;anti-involution.&#34;
We need to shift the performance and assessment views of local governments from merely focusing on supply, production, and construction to enhancing social security services and improving resident consumption.
Similarly, the reform of the fiscal and tax system should shift from simply relying on turnover taxes and value-added taxes at the factory end (where there is output, there is tax revenue) to a fiscal and tax system that relies on improving resident income and consumption. This requires meticulous work in the &#34;14th Five-Year Plan.&#34;
Therefore, from a policy perspective, I believe that the rational choice is not to respond to and echo the suggestions of some people who advocate for relying on long-term significant appreciation to &#34;correct&#34; the situation.
Although in the short term, as we analyzed last week and the week before, with the depreciation of the dollar in the first half of the year, the Renminbi to dollar exchange rate may reach 6.85 or 6.8 in the first half of this year, this appreciation is still moderate overall and will not significantly impact our exports and deflation
Marginally, it also makes up for the part where the renminbi underperformed last year, demonstrating the stability of the renminbi exchange rate.
However, it needs to be clarified that this appreciation is a result, reflecting changes in economic fundamentals, rather than a means or an active tool for promoting economic rebalancing.
For the exchange rate for the whole year and the next one or two years, I think we should still view it relatively moderately and cautiously, without leaning towards following the crowd and singing praises that we have now entered a sustained and significant appreciation trajectory. This is my analysis of the exchange rate.
Overall, since the beginning of the year, from the so-called forward-looking concept of technological innovation to the liquidity support of capital relocation, and then to the deepening of the &#34;de-mystification&#34; process of dollar assets globally due to &#34;stability in the East and fluctuations in the West&#34; (which has driven sentiment support for Chinese and Asian assets), this is still the main reason for the &#34;good start.&#34;
However, regulators have begun to moderately guide a cooling down to avoid excessive market enthusiasm. In this process, we have also mentioned the appreciation of the renminbi, as well as the favorable policies of issuing government bonds in advance in the first quarter and supporting infrastructure investment to achieve a &#34;good start,&#34; all of which are concentrated in the first quarter.
<h2>After Spring, Treat the Market More Rationally</h2>
After spring, we need to treat the market more moderately and rationally. At least from the perspective of economic indicators, breaking the deflationary path is difficult and long. Currently, there is no substantial roadmap and timetable for stabilizing the real estate market, supporting service consumption, and releasing long-term consumption potential through improving and solidifying social security.
It may be after the &#34;Two Sessions&#34; that some cities will be selected for pilot projects on mortgage interest subsidies;
And it will only be considered around mid-year, in June or July, whether to implement &#34;trade-in&#34; (durable consumer goods) under national subsidies, as its marginal utility decreases, and whether to extend support policies to service consumption.
The full text of the &#34;14th Five-Year Plan&#34; will also be released after the &#34;Two Sessions.&#34; It remains to be seen whether there will be a more detailed roadmap regarding social security subsidies, including those for migrant workers, and social security reform.
That is why, in the short term, from a fundamental perspective, it makes a lot of sense for regulators to moderately provide window guidance and offer some direction to market enthusiasm.
Source: Investment Workbook Pro, Author: Wang Li
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The market has risks, and investment requires caution. This article does not constitute personal investment advice and does not take into account the specific investment goals, financial conditions, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article align with their specific circumstances. Investing based on this is at one's own risk.

At the closed-door meeting of Morgan Stanley, Chief Economist Xing Ziqiang analyzed market performance, pointing out that the "good start" at the beginning of the year is influenced by industrial confidence, capital flow, and global sentiment. He warned that despite the popularity of technological innovation, traditional economic downward pressure still exists, and the recovery of market enthusiasm is slow. In addition, he emphasized that one should not sing high praises of the RMB significantly appreciating in the long term

Wallstreetcn

Xing Ziqiang: After the spring excitement, we should treat the market more rationally and it is not appropriate to sing high praises of the renminbi entering a long-term significant appreciation range